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FCA emphasises need for transparency in regulatory approach

A recent update from the UK’s Financial Conduct Authority (FCA) indicates that it is likely to pursue greater transparency even outside any enforcement investigation, posing some challenges for firms, an expert has said.

FCA chief executive Nikhil Rathi outlined in a recent speech the key steps the FCA is taking in its shift to outcomes-focused regulation.  His comments highlight what firms can expect to see from the regulator and the benefits the regulator aims to achieve in supporting a thriving, attractive and competitive financial sector in the UK. This includes a drive by the FCA to greater transparency around the FCA’s concerns especially where there is the possibility of a need for redress.

The speech follows proposals set to change the FCA’s approach to enforcement. UK financial firms are urged to be ready to engage with pending updates to processes, including internal investigations. The FCA recently published a consultation (91 pages / 992 KB) with a particular focus on increasing its ability to publicise investigations, as part of its strategy to achieve deterrence and tackle serious misconduct. 

Jonathan Cavill, financial enforcement expert at Pinsent Masons, said: “The emphasis from the FCA continues to be on firms pro-actively ‘doing the right thing’.  Firms that act in this way are

more likely to achieve successful outcomes with the regulator and have a greater chance of avoiding the formal enforcement process or financial penalties if an investigation is opened.”

Financial regulation expert at Pinsent Masons, Venetia Jackson, said: “Whilst there are clear consumer benefits to consumers being made aware of issues, there are also potential complications in complaints and even litigation overtaking planned remediation exercises. Firms will need to be ready to engage with the FCA about any proposed publicity at an early stage and consider their own pro-active and reactive media strategies where publication is a realistic possibility.”

Also included in the speech are further details about the FCA’s approach to the consumer duty, a flagship policy in the FCA’s move to outcomes-focused regulation.  The speech discusses how the FCA intends to tackle issues more generally, as well as looking forward to some specific publications that it intends to issue later this year.

Value has been a theme of FCA consumer duty action to date. Rathi said that the FCA is not a price regulator, but that it will act if it has concerns. It wants firms to be able to demonstrate their products are fair value, and Rathi emphasised that the FCA’s action will always be based on evidence. This means that firms can expect comprehensive data requests where the FCA thinks there may be an issue.

The chief executive highlighted the importance of businesses taking responsibility for their actions, calling for firms to take part in a proactive approach. This includes delivering products and services designed with the needs of consumers in mind, being upfront about practices and risks associated with products.

The FCA will give firms time to act where it identifies a concern, but it will not hesitate to move to firmer intervention if firms do not respond.

Cavill said: “Firms need to pay close attention to any communications from the FCA, whether general, sectorial, or firm specific on concerns. The speech sends a clear message that firms will get one warning shot about an issue and if they do not address the problem, the FCA will look to intervene.”

Identifying the appropriate action for any issue remains a challenge for firms, however. Therefore Jackson said that pending guidance from the FCA will be welcomed. “We look forward to seeing the guidance for consultation on dealing with identified redress issues. Nikhil Rathi’s indication that the FCA are not looking to pursue technical breaches and will look favourably on firms taking pro-active action is welcome. This guidance will be helpful for firms in navigating this expectation,” Jackson said.

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