Response to the FCA’s Consultation Paper on changes to its Enforcement Guide and the publishing of enforcement investigations

UK Finance has responded to the FCA’s Consultation Paper on changes to its Enforcement Guide and the publishing of enforcement investigations. 

Whilst we support the FCA’s aims of greater transparency and cutting down the time it takes to conclude enforcement investigations, we rejected its proposal to announce the opening of an enforcement investigation and the name the firm involved. This is in contrast to the current position where the identity of a firm involved in an enforcement investigation is only revealed once it is completed and then only if the FCA uncovers any wrongdoing. Currently 65 per cent of its investigations result in no such finding. 

Members, large and small, banks and non-banks, were united in their concern about the proposals to ‘name and shame’ firms at the outset of an investigation. This flies in the face of the key principle of being innocent until proven guilty, and could even be seen as an almost Kafkaesque step in the erosion of the presumption of innocence.

Our response analysed the FCA’s proposals against its objectives, as set by Parliament.

We said that the FCA’s overarching strategic objective of ensuring financial markets function well could be damaged by the proposals – unnerving firm’s stakeholders including customers, depositors, employees, investors and rating agencies, who may take a ‘no smoke without fire’ approach. Ultimately impacting, among other things, public confidence and share price. 

We also doubted whether the plan to identify a firm at the onset of an investigation supported its operational objectives. The consumer protection objective could be compromised if consumers are spooked by an announcement, prompting them to withdraw deposits or liquidate investments making them less able to meet their longer-term financial objectives. 

The market integrity objective could be jeopardised if there are spillover effects as possibly ill- informed social media users have the potential to spread disinformation about firms, as happened so rapidly in the case of Silicon Valley Bank last year.

Finally, the competition objective could also be endangered. Our response included analysis that showed that no other G7 country currently takes the FCA’s proposed approach. Its introduction could deter overseas firms from operating in the UK, thereby damaging UK competitiveness. 

We concluded that the risks to individual firm reputational damage and wider systemic stability of the introduction of the FCA’s proposed changes do not outweigh the benefits it could bring. And crucially we believe its aims can already be achieved through its existing regulatory framework.

We look forward to discussing our arguments with the FCA and hope they will significantly modify the proposed approach.