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Abdulali Jiwaji published in The Times

By Abdulali Jiwaji

Partner Abdulali Jiwaji examines in The Times the Financial Conduct Authority’s recent announcement that it will publicly name the companies it is investigating to deter wrongdoing, strengthen its enforcement work and increase public confidence in it, and why this may not be the optimal approach to improving the regulator’s enforcement strategy.

Abdul’s article was published in The Times, 14 March 2024, here.

Last March, the Financial Conduct Authority (FCA) appointed Therese Chambers and Steve Smart as joint Executive Directors of Enforcement and Market Oversight. This was during a year in which only eight FCA fines were issued, the lowest on record, meaning that public/market confidence in the effectiveness of FCA’s enforcement function may well need a boost. What will 2024 bring?

Some indications of intent come from the FCA’s recently published consultation paper outlining plans to support its enforcement work by naming companies under investigation, in some circumstances. This is with the aim of deterrence – educating the market on the type of misconduct the FCA thinks warrants a formal investigation – and also to encourage whistle-blowers to come forward early. The consultation period closes in April.

The consultation seeks opinions about whether details of current FCA investigations should be made public. This prospect does raise due process concerns. For subjects under investigation, particularly small firms and the individuals involved, the impact can be devastating: dealing with the fallout will invariably detract from their management of the business, which may suffer irreparable harm. The additional burden of publicity will cause further stress, and may be terminal for the business.

But while a lag is inevitable between the start of an investigation and its conclusion, transparency may not be the solution. If messaging is paramount, there are other ways to put the market on notice, such as publishing anonymised examples of cases under investigation and associated issues. The wider question is whether we want to proceed on an “innocent until proven guilty” basis, or create a more transparent climate that may result in some rough justice.

The FCA has said that it intends to streamline its approach to investigations to focus on priority cases – it has reiterated that it remains focused on delivering results in the areas of putting consumer needs first and combatting market abuse and financial crime.

Consistent with this, we’re likely to see action from the FCA in cases involving breaches of the Consumer Duty, which came into effect last July. This would involve the FCA prioritising breaches which result in harm or risk of harm to consumers.

We have also heard less from the FCA on senior management responsibility, in contrast to the Prudential Regulation Authority, which has recently announced fines in relation to senior management default.

Therefore it is likely that the FCA will be keen to highlight particularly cases involving Consumer Duty breaches where senior management responsibility is also in question. Of course, this may be just the type of area where publicising an investigation at an early stage will support the FCA’s goal of educating the market.

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