FCA confirms intention to publish details of proposed enforcement action at an earlier stage

Out-Law News | 16 Oct 2013 | 3:33 pm | 2 min. read

Publishing information about proposed enforcement action against financial services firms at an earlier stage will make the process "more transparent" and support the regulator's consumer protection role, the Financial Conduct Authority (FCA) has said.

It has published a final policy statement, setting out how it will use its powers to publicise 'warning' notices against firms suspected of misconduct before proceeding to formal enforcement action. These notices will usually name the firm under investigation, and may name particular individuals in certain circumstances, it said.

The FCA's final position has slightly changed from that set out in a consultation, published in March 2013. At the time, the regulator said that it planned to publish notices related to either firms or individuals in most circumstances, unless the person involved could prove that publication could materially affect their health, result in a "disproportionate" loss of income, or prejudice criminal proceedings against them.

"I believe we have got the balance right so we now have in place a regime that enables us to provide information to consumers, investors and firms earlier about the action we are taking to tackle misconduct to ensure markets work well and consumers get a fair deal," said Tracey McDermott, the FCA's director of enforcement. "It is clear that the more transparent and open that we can make the regulatory process, the more confidence we can give people that we are acting in their best interest."

The FCA was granted the power to publish warning notices, issued when it is proposing to take enforcement action against a firm, as part of the 2012 Financial Services Act. Under the current regime, which also applied to its predecessor the Financial Services Authority, regulators could only publish information about enforcement proceedings once it had decided to take action or had finalised that action.

According to the policy statement, the FCA will decide whether to publish details of a warning notice, and which details to publish, on a case by case basis. In every case, it will consult the person under investigation before making a final decision whether to publish, and take into account any evidence that publication would be unfair.

A published warning notice statement will usually include a brief summary of the facts which gave rise to the warning notice in order to enable consumers, firms and market users to understand the nature of the FCA's concerns, it said. It has amended the policy to consider separately whether to also identify the subject of the notice, as well as details of the behaviour that caused concern.

As a general rule, the FCA said that it would normally be appropriate to identify a firm that is the subject of a warning notice but not an individual. This was because "the potential harm caused to an individual from publication at this stage of the enforcement proceedings will normally exceed the benefits of early transparency". However, the policy statement lists a number of circumstances in which it may be appropriate to identify an individual. These could include where it is not possible for the FCA to set out the nature of its concerns without identifying that individual, to protect consumers or to quash rumours in the market.

The FCA's final approach also makes it easier for firms and individuals to prove that publication would be unfair than the approach set out in the consultation. It will now consider whether the subject of a notice is an individual or a firm, and the size of that firm, as a relevant factor. It has also slightly lowered the threshold the subject will have to meet to show that publication could cause a 'disproportionate' level of damage to potential 'significant' loss of income rather than potential 'disproportionate' loss of income.

Financial services regulation expert Monica Gogna of Pinsent Masons, the law firm behind Out-Law.com, said it was important for the regulator to balance its desire for increased transparency with the rights of firms and, particularly, individuals, to state their case.

"Whilst it is positive that the FCA wishes to increase transparency with regards to its investigations, this must be balanced by the principle that firms - and crucially, individuals within those firms - should also be given an adequate opportunity to present their case in a fair manner," she said.