The FT reports that the FCA has written 62 private warnings to individuals and companies so far in 2014, taking it close to the record 64 issued in the whole of 2012, compared to an average of 20 in previous years.
Lawyers are warning the increase could amount to “enforcement by the back door”, and the tool is being used to make serious findings against individuals and firms.
Sara George, a former regulatory official and now a partner at Stephenson Harwood, said:
“Originally, private warnings were used when the infractions were not serious. Now the FCA is using them to make findings that someone is not fit and proper. I question whether that’s appropriate.”
The FCA said:
“Where an individual applies for authorisation the FCA must be satisfied they are fit and proper. A private warning is one factor we will take into account in that, as is any other evidence from previous supervisory interactions.”
Private warnings have no legal force, and the FCA said they could be challenged.
The censures stay on individuals’ or firms’ records, and must be disclosed to a new employer. Even then, the FCA still has the ultimate say in whether the person can move to a new regulated role.
Steven Francis, a partner at Baker & McKenzie said:
“So many people are happy just to get a private letter – rather than a fine, say – that they don’t focus on the content, which can contain very serious findings and where there is no real redress mechanism."
Another lawyer characterised the warnings as a “cheap and nasty way of getting someone out of financial services”.
Regulatory experts report increased use of the warnings to conclude the FCA’s investigation into the alleged rigging of Libor, which has seen traders not in regulated roles suspended or sacked. Lawyers also forecast that private warnings would be used to resolve certain cases in the ongoing probe into alleged rigging of the foreign exchange market.
The FCA refused to clarify how many of its private warnings pertained to benchmark investigations, citing data protection laws.
