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The House of Lords Financial Services Regulation Committee has highlighted its concerns about the Financial Conduct Authority’s proposal to announce in advance its enforcement investigations into firms.
In February, the FCA had published a consultation paper proposing a revision of its investigations in a bid to publish more information and enforce transparency throughout the process.
In the paper, the FCA said that the new measures would include publishing the identity of the subject of the investigation, subject to legal reasons not to.
However, in a letter to Nikhil Rathi, chief executive of the FCA, published yesterday (22 April), the committee warned that the FCA’s proposal risks having a disproportionate effect on firms named in investigations, where those firms are subsequently cleared of any wrongdoing, particularly given how long many previous investigations have taken and the numbers which have resulted in no further action.
The committee said it believes the FCA’s plan risks the overall integrity of the market and possible unwarranted impact on blameless firms identified as being under investigation. Additionally, it warned that individuals, whether named or not, may have their reputations unfairly tarnished through association with a publicised investigation.
The committee will be taking evidence on this proposal, so it is calling on the FCA to extend its brief consultation period, which is currently due to close on 30 April 2024, and take no further action until the committee has taken evidence and reached a conclusion.
Lord Forsyth of Drumlean, chair of the Financial Services Regulation Committee, said: “The FCA’s plan to announce the opening of new enforcement investigations could have a highly negative impact on firms subsequently cleared following a potentially lengthy investigation. Despite having done nothing wrong, those firms, and individuals associated with them, risk having their reputations tarnished. This could also unnecessarily distort the market.
“’Innocent until proven guilty’ is a fundamental principle of our justice system. The committee is presently unconvinced that the FCA has justified departing from this important principle and taking an approach that is at odds with almost all other financial services regulators.”
Lord Forsyth added: “The FCA has not carried out a cost-benefit analysis of its proposal or even assessed its likely impact. That’s why we’re calling on the regulator to pause implementation until our committee has had a chance to gather evidence and scrutinise its proposal.”
