The FCA has published the final version of its updated and streamlined Enforcement Guide.
As previously announced, the FCA has retained the 'exceptional circumstances' test for announcing investigations into regulated and listed firms.
In March, the regulator abandoned its plans to introduce 'name and shame' proposals for firms under investigation following widespread industry criticism.
First announced last year, the regulator had proposed identifying firms at the outset of an investigation, using a 'public interest' framework, providing the firm with 24 hours’ notice that it is doing so.
The FCA's consultation prompted widespread backlash from across the financial services sector, including the previous Chancellor and the cross-party House of Lords Financial Services Regulation Committee.
When can the FCA name firms under investigation?
Although it will continue the 'exceptional circumstances' test, the FCA said it has identified three situations where there was broad support for increased transparency:
• Where it is investigating suspected unauthorised financial services, or a suspected offence relating to unregulated activity, and an announcement will warn consumers or investors or help the investigation.
• Where the fact of the investigation has been made public by the subject, an affiliated company or a regulatory body, government or public body.
• Anonymised announcements, not naming or identifying the subject of the investigation, where it would be helpful to educate people on the types of misconduct the FCA is investigating.
These changes will only apply to investigations launched on or after today.
Alongside this, the FCA says it will improve the pace and focus of its investigations. Five recent investigations closed with a public outcome in less than 16 months, compared to an average length of 42 months in 2023/24.
The FCA has also made other changes to the Enforcement Guide to streamline the content and reduce duplication, reducing it by over 250 pages. In addition, the FCA has confirmed today that it will continue to consult on future changes to the Guide.
Imogen Makin, counsel at WilmerHale, commented: "The FCA’s confirmation in PS25/5 that it will not proceed with proposals to introduce a public interest test for announcing investigations at an early stage will be welcomed by the financial services industry
“The changes will only apply to investigations launched on or after today, another welcome revision to the initial proposals. The updated policy would seem to allow for the announcement of an investigation by the FCA where the subject has communicated the fact of an investigation in publicly available accounts, for example. As a result, financial services firms will need to take extra care when drafting disclosures and prepare for a potential increase in the media, customer and stakeholder attention that might follow an FCA announcement.
“Anonymised announcements will need to be carefully drafted by the FCA and, potentially, aggregated to ensure that investigation subjects are not identifiable or that particular sub-sectors in financial services are not unnecessarily de-stabilised. Provided that announcements are appropriately anonymised, they could be useful tools to assist firms’ understanding of the FCA’s focus and the types of concern that are likely to tip a firm into enforcement and, therefore, encourage compliance. Firms should ensure that they monitor the FCA’s announcements going forwards to gain valuable insights into the regulator’s mindset.”
Katie Stephen, partner and London co-head of the contentious financial services group at Norton Rose Fulbright, said: “Many will see the ‘name and shame’ reversal in position as a rare success story for industry push-back, which may embolden future challenge. However, it remains to be seen whether the FCA will in future stretch the provision for investigation announcements to be made in “exceptional circumstances”, given its clear desire to publicise that action is being taken.
“Obtaining anonymous details about investigations could help firms to avoid pitfalls, if enough information is provided, but a balance needs to be achieved so as not to give away the identity of the subjects and lead to unhelpful speculation. Senior managers will need a process for identifying lessons learned and any actions they need to take in their areas of the business, as failing to do so will be treated as an aggravating factor if any similar issues are uncovered in the future.
“Individual cases of bad behaviour and associated firm-related failings remain on the regulatory agenda for investigation and potential enforcement action, particularly if the FCA is speeding the process up and making inroads into the backlog of historic cases. Some recent outcomes demonstrate that the FCA is still keen to make examples of individuals falling below its standards.
“The FCA has confirmed that it now has fewer open investigations. This is a double-edged sword for firms in that they are less likely to be investigated but more likely to face an outcome if they are. There may also be a greater risk of a public supervisory intervention if the FCA seeks to take action - and makes this public - at an earlier stage when concerns are identified. It puts the emphasis for firms firmly on compliance and prevention, so as to avoid being dragged into the spotlight.
“Senior managers will need to consider that - if the current approach to enforcement does not work as a deterrent - the pendulum could swing back, as it did following the global financial crisis. That could mean more investigations and ultimately more visible and severe penalties for both firms and individuals.”
Harvey Knight, partner and head of the UK financial services regulatory team at Withers, added: "The issue of publicity in relation to ongoing FCA Enforcement investigations remains vexed. Any firm and/or individual senior manager that is at risk of FCA Enforcement investigation should seek expert professional advice as soon as possible to mitigate the risks of any related publicity as the FCA's approach to such publicity remains highly nuanced and potentially capricious to any subject the FCA is investigating. Otherwise it is a Pandora's box in the sense once opened, many unforeseen problems will be caused."
