Has the FCA now managed to satisfactorily reframe its proposals on transparency of enforcement investigations? And if so, was it necessary to make the whole process so painful?

We have previously written about this issue here and here.  The FCA has now published CP24-2 Part 2 setting out various changes to its original proposal. 

Mitigating the risk of announcement of investigations that are closed with no further action. The FCA says it has addressed this with a higher bar for the standard of opening of enforcement investigations through strengthened triage processes.  These include consideration of whether a case can drive impactful deterrence, or whether there are other tools that can stop and reduce harm.

Number of announcements.  This is expected to be small.  The FCA says the new test for transparency will not be applied retrospectively to existing cases, other than to reactively confirm the existence of an investigation already in the public domain.  The FCA points out that under its revised approach it only opens 10-12 new enforcement cases per year in relation to regulated firms.

New factors to be included in the public interest test.  

These include:

• The impact of the announcement on the relevant firm; and
• Potential for announcement to seriously disrupt public confidence in the financial system or the market.

Timing point of announcement. Whilst this will be considered early on in investigations – for example to provide reactive confirmation, the FCA has said it is more likely to consider it at the three month point.  This will help to limit the number of announcements made about investigations that end in no further action.

Time to respond. The time for firms to make representations on whether, when and what to announce has been extended from one to ten business days.  Firms will then be provided with reasons and a copy of the final text at least two business days before publication. 

MAR. For firms with obligations under the Market Abuse Regulation, the FCA has said it would generally be content for the firm to announce first in line with its obligations, which the FCA would then follow up with a reactive confirmation.

‘Enforcement Watch’. The FCA has said it will give further thought to producing an Enforcement Watch, covering themes, topics and trends in enforcement work – providing reactive, anonymous information in a grouped way rather than proactive, anonymous individual announcements.

The FCA says that 80% of those it regulates believe the FCA enhances the UK’s reputation as a financial centre.  However, the initial version of these proposals was very poorly received by regulated firms and their providers because trust was low in how the FCA would apply the proposed public interest test.  It did not originally include consideration of the impact of the announcement on the relevant firm, and gave a ridiculously short time for a firm to make representations in relation to the proposed announcement.  Even the Payment Systems Regulator (a fully independent subsidiary of the FCA), in its June 2020 Powers and Procedures Guidance (and retained in its updated 2024 Guidance) includes in its list of relevant factors to be considered in relation to publicising details of any action considered: “whether publication would have an adverse impact on the party subject to the action being considered or taken which would be disproportionate to the benefits, considered in general terms, of publication”.

The FCA has carefully set out in its latest consultation that it has been able to increase the pace and focus of its enforcement investigations entirely separately from the proposed increase in transparency of its investigations.  It has also re-emphasised that it will report annual figures of enforcement investigations that were announced and subsequently closed with no action such that it considers it will not undermine the effectiveness of its enforcement action with this proposal. 

The All-Party Parliamentary Group (APPG) on investment fraud and fairer financial services has recently published its report following its call for evidence on the FCA. The FCA has a difficult task balancing the needs of all stakeholders.  However it is alleged in that report that the FCA sometimes acts in bad faith.  Looking at that report, it is possible to surmise how the FCA came to exclude the impact of the announcement on the relevant firm from its public interest test. The report also notes that financial services represent around 8.3 percent of UK GDP and constitute the country’s largest recipient of Foreign Direct Investment.  It is to be hoped that in applying the public interest test to the announcement of enforcement investigations the FCA will act in good faith for the benefit of all.