FCA signals softening of ‘name and shame’ proposals as enforcement approach evolves

The regulator’s changing approach was outlined by Therese Chambers, its joint executive director of enforcement and market oversight, during the AFME Annual European Compliance and Legal Conference. In her speech, the FCA’s focus on adapting its approach to “meet evolving threats and maximise the deterrent effect” was particularly highlighted.

Of particular interest to firms, Chambers signalled the FCA’s intention to consider further feedback on its proposals for greater transparency. One of the regulator’s proposals in this regard, which many in the financial services industry have dubbed its ‘name and shame’ proposal, was set out in a consultation paper released in February, and would see the FCA publicising information on who it is investigating and why, where it considers it to be in the public interest to do so.

In her speech, Chambers acknowledged “the strength of feeling from all sides” elicited by the proposals. “While consumer groups, whistleblowers and some other regulators welcomed the prospect of greater transparency, the companies we regulate were overwhelmingly against,” she said.

She added that the regulator is “listening”, having analysed each and every one of the more than 130 responses to the consultation. Although the FCA is “not going to rush this”, “the case for a degree more transparency remains strong”, according to Chambers.

Noting that “this is very much an ongoing conversation”, Chambers clarified the FCA’s overarching intentions behind the proposals: to step away from a “computer says no” approach to the publicising of enforcement investigations and adopt a more transparent approach. It is the FCA’s hope that this transparency would enable greater consumer protection; enable market education through highlighting “concerning conduct” to the market at earlier stages to allow “others to course correct sooner”; provide assurance to whistleblowers that the FCA’s “door is open”; and enable the FCA to be seen to be taking action, particularly where the fact of other regulators’ investigations has already been publicised.

Data, technology and an evolving approach

Chambers’ speech also made it clear that the FCA’s data and technology capabilities are improving all the time. These have recently included refreshed analytics to help the regulator identify patterns across markets trading data, with the regulator processing “around 1 billion records per day”. Going forward, the FCA’s approach will be ever more data and technology driven, and firms are encouraged to collaborate with the FCA in this respect. “Because the quicker we can gather accurate information, the quicker we can respond to challenges as they arise,” she said.

The regulator also plans to increase the pace of its investigation work to deliver outcomes faster. It is aware that “the deterrent effect of enforcement action is greater the closer in time it is to misconduct occurring”. According to the FCA’s enforcement data, investigations closed in 2023-24 took an average of 42 months to complete. However, the FCA believes it can improve on this and has made notable advances already. It has reached 24 outcomes so far for 2024, compared to 26 for the whole of 2023.

To be able to conduct investigations at a greater pace, the FCA has recognised the need to streamline its caseload and focus on cases better aligned to its strategic priorities.

“It’s about making a conscious decision to identify cases where we believe there may be conduct creating the greatest risk of harm, and where an investigation is most likely to drive the greatest deterrence,” said Chambers, further emphasising that a reduction in the number of investigations does not mean a reduction in effort, nor does it mean “going for the low hanging fruit”.

The desire to streamline also goes hand-in-hand with the regulator’s commitment to using digital tools effectively. That is particularly notable in the area of market oversight, where Chambers highlighted that: “While our enforcement work might grab the headlines, behind the scenes our Market Oversight teams are quietly working away, using sophisticated digital tools to monitor the market and detect misconduct in real time.”

Market oversight is a core part of the FCA’s regulatory oversight role, particularly as a priority for the regulator is to combat market abuse and misconduct. It is likely that firms will see further investigations and notices in that space over the coming year.

Although the FCA may be opening fewer investigations, it expects to see a greater number of outcomes and a greater impact from its enforcement activity.

The latest enforcement data released by the FCA suggests that this ambition follows a dip in enforcement outcomes in the 2023-24 financial year, accompanied by a significant increase in FCA interventions and enforcement case closures. This may be explained by work behind the scenes to recalibrate the use of the regulator’s resources, and clear a backlog of historic enforcement referrals. It remains to be seen if current efforts to streamline the FCA enforcement’s portfolio will yield the results hoped in the long run.

FCA listening to feedback on its enforcement transparency proposals

Greater transparency is another ongoing focus of the FCA’s enforcement approach. The so-called ‘name and shame’ proposals have elicited a significant degree of controversy and concern across the financial industry.

The FCA’s acknowledgment that 130 consultation responses, including one submitted by Pinsent Masons, were received, and of the need to reflect further on the range of serious concerns raised by respondents to ensure the right solutions are proposed, appears to be as close to a display of contrition from the regulator as the industry can expect to receive.

Chambers has now confirmed that the FCA will consult on new updated proposals in Autumn 2024. In respect of these, she has clarified several principles.

While it continues to consider there is a need for greater transparency, the FCA’s proposals do not purport to indicate a sudden switch to a blanket ‘computer says yes’ approach.

“We are not proposing moving from publicity in zero cases now, to 100% of cases in the future. Rather, a case-by-case approach following assessment of clearly defined criteria - including consideration of the potential impact on the firm and market. But we heard loud and clear that the criteria we consulted on were too high level and lacked specificity,” said Chambers.

The FCA recognises the desire for greater definition on any new public interest test, as Chambers said: “To bring this to life, we will publish case studies examining how the criteria might apply and what announcements could look like, as well as more information on the numbers of cases that might be affected.”

The FCA’s proposals will now also allow firms time to provide their views on whether, what and when the FCA announces, in respect of enforcement investigations that may be publicised.

Most significantly, the FCA now also appears to recognise that the impact on firms of publicising investigations, “within the vital context of a focused number of cases likely to deliver the greatest deterrent”, may need to be considered in the updated proposals.

Concluding her remarks on the topic, Chambers provided reassurance that the FCA “won’t be rushing into any decisions”, and “wants to find the right solutions”.

The announcement of a new, more granular, set of proposals is likely to be welcomed by the financial services industry – particularly if these include a mechanism for firms to make representations to the regulator, and provide for the potential impact of publication on firms and their customers to be considered.

Co-written by Sebastien Ferriere of Pinsent Masons