FCA urged to rethink plans to name companies under investigation

Jonathan Cavill of Pinsent Masons, who specialises in contentious financial services regulation, investigations and enforcement, was commenting after UK chancellor Jeremy Hunt called on the FCA to “re-look” at its proposed changes to its policy on publicising investigations.

Currently, the FCA’s normal approach is not to make public the fact that it is or is not investigating a particular matter, or any of the initial findings or conclusions of an investigation. The regulator will only make this information public when there has been a formal finding leading to a statutory decision notice, or in “exceptional circumstances” where disclosure is necessary to maintain public confidence – such as where the matters under investigation have become the subject of public concern, speculation, or rumour. Its approach is set out in chapter six of its Enforcement Guide (EG).

In February, however, the FCA opened a consultation – which closed on 30 April – on proposals to change its approach to publicising enforcement investigations. Under its plans, the FCA would create three categories of cases in relation to publicity.

The first category would capture cases where the FCA is likely to announce publicly that it has opened an enforcement investigation. It would include cases where the regulator believes disclosure could help the investigation, such as by encouraging potential witnesses or whistleblowers to come forward, or address public concern or speculation, including by correcting information already in the public domain.

The second category would be cases where the FCA is unlikely to make a public announcement. This would include investigations with a covert element, most cases against individuals, and cases conducted for overseas regulators.

The third category would include investigations where the FCA will consider an announcement on a case-by-case basis. This would include all other cases.

While a new categorisation system would operate, in each case the FCA would assess whether it is in the public interest to disclose the identity of those under investigation and take account of whether there are “compelling legal or other reasons” not to make disclosures as part of that decision-making process.

In comments made to the Financial Times, Hunt, however, said the FCA’s draft revised policy around “naming and shaming” companies under investigation “doesn’t feel consistent” with the secondary duty the FCA is under to advance the international competitiveness of the UK economy and its growth in the medium to long-term. He has called on the FCA to “re-look” at its plans. In its consultation paper, the FCA said it believed its plans were “compatible” with its duties around promoting growth, but the regulator said it would consider feedback to its proposals before confirming its final policy.

Cavill said complex issues can arise in the context of naming the subjects of a regulatory investigation and that the stated intention behind the FCA’s plans – to decrease the likelihood of harm to consumers of UK financial services and to UK financial services markets – could be achieved by the FCA in other ways.

“Whilst earlier publication of issues under investigation may in some cases help to inform market awareness, increase public confidence, and hold the FCA more accountable on the progression of investigations, there are concerns as to whether the proposed changes are a fair or proportionate way to achieve these objectives, or whether they will bring the outcomes the FCA seeks to achieve,” Cavill said.

“There is the potential for significant negative impacts for regulated firms, individuals and markets. The FCA will no doubt be considering whether there is incompatibility with property rights and rights to privacy provided for under the European Convention on Human Rights and UK Human Rights Act, for example. Data protection and the procedural unfairness arising from publication and publicity impacting investigation subjects without an adequate prior right of reply, or right of referral to the Upper Tribunal, are also important points for consideration. There is also the challenge around listed share values and the knock-on effect this may have to retail customers’ pension pots and investments,” he said.

“Arguably the majority of the objectives underpinning the rationale for the proposed publicity policy changes can be achieved through means less detrimental to those under investigation, such as ‘Dear CEO’ letters and enforcement data reports. There could be a fairer balance that can be struck between ensuring informative and accountable investigations that garner public confidence, whilst ensuring compliance with natural justice, procedural fairness and rights to privacy and data protection,” Cavill added.