FCA Enforcement U-Turn

On 12 March 2025 the FCA announced, by publishing a letter they have written to the Treasury Select Committee, they will “not take forward our proposal to shift from an exceptional circumstances test to a public interest test for announcing investigations into regulated firms”.

Background

On 27 February 2024 Therese Chambers, joint Executive Director of Enforcement and Market Oversight at the Financial Conduct Authority (“FCA”) delivered a speech at the Market Abuse and Market Manipulation Summit; during the speech Ms Chambers said: “We want our enforcement work to deter harm. It aligns with our objective to protect consumers and markets. Our enforcement action also directly reflects our strategic aims - to reduce and prevent serious harm and test and set higher standards.”

By way of quick reminder, in its Consultation Paper from February 2024, the FCA said that it: 

• was committed to conducting enforcement cases more quickly so as to increase deterrence and impact of those cases; 
• would focus on streamlining its portfolio of enforcement cases to improve the market impact of the process; and 
• would close enforcement cases more quickly where no outcome is achievable.

As part of the new strategy, the FCA had proposed to publicly announce the opening of an enforcement investigation, identifying the subject of the investigation and publishing updates “as appropriate” on its investigations into alleged misconduct by a firm. 

Update

We commented in December 2024 on the amendments to this controversial proposal which watered down the original plans as follows:

• The potential negative impact on a firm of an enforcement investigation being publicly announced would be explicitly considered as part of a public interest test
• Firms will be given 10 days’ notice ahead of any announcement being made, rather than the 1 day originally consulted on
• The potential for an announcement to seriously disrupt public confidence in the financial system or the market is included as a new factor in the public interest test
• Investigations would not be announced by the FCA which began before any changes to the policy come into effect.

In December 2024 we recommended that firms who would be affected continued to provide feedback to the FCA if they remained unconvinced by the proposals; and it appears that (regardless of whether they specifically followed our recommendation or not!) this is what has happened, and the proposals have been dropped.

The Latest Position

The FCA have openly conceded the position regarding the announcement of investigations, and it is clear they have listened to the industry outcry that the proposals initiated.  

Nikhil Rathi, chief executive of the FCA, commented: “Considerable concerns remain about our proposal to change the way we publicise investigations into regulated firms, so we will stick to publicising in exceptional circumstances, as we do today.”

However, the FCA plan to proceeds with other (less contentious) aspects of its enforcement related transparency proposals: 

• Reactively confirming investigations which are officially announced by others, typically market announcements or other disclosures made by firms themselves or announcements by a partner regulator. 
• Public notifications which focus on the potentially unlawful activities of unregulated firms and regulated firms operating outside the regulatory perimeter, where doing so protects consumers or furthers an investigation. 
• Publishing greater detail of issues under investigation on an anonymous basis, perhaps via a regular bulletin such as Enforcement Watch. The FCA thinks this may help highlight more quickly significant areas of concern and where firms may consider making improvements.

The FCA plans to publish a final policy statement by the end of June with an updated copy of its Enforcement Guide., 

Comment

Garon Anthony, Financial Services Disputes Partner commented:

“From the moment these proposals were published by the FCA there has been an entirely understandable outcry against them.

“As I have said previously, regardless of the ultimate outcome of any investigation, reputations and share prices could be seriously damaged from the moment the investigation itself was announced, with the possibility for some damage to be irreparable.

“So, I am pleased to see that the FCA has taken heed of the strength of industry and political feeling towards the transparency proposals and amended them accordingly; the U-turn does not dissuade from the need for strong regulation in the sector and for ensuring the regulation is upheld, but that has to be at a cost which is fair and appropriate in the circumstances”.