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The FCA’s consultation paper marks a stark shift in enforcement practice with a proposal that all enforcement investigations are publicly announced at commencement.
Over recent years the FCA has come under increasing pressure from its perceived poor overall success rates in prosecutions, its failure to hold senior managers to account, its inability to make enforcement action stick with the largest firms and for the inordinate length of time it takes for investigations and enforcement to come to fruition. Feedback received from a recent NEDs in FS forum of Chairs and NEDs of financial services firms suggests that fear of the regulators is not what it was and, in many cases entirely absent.
The FCA’s proposals are bold and unlikely to be popular, but they have the potential to significantly improve the FCA’s diminished reputation.
The disadvantages for firms are obvious, ranging from allegations of smoke without fire, trial by media and clients and staff overreacting and taking matters into their own hands.
The advantages for the regulator are that they get to control the narrative, dispel rumours and, importantly, create an environment in which witnesses and whistle-blowers are encouraged to come forward. This in turn has the potential to significantly speed up prosecutions, leading to reduced costs and the regulator being able to stretch its resources further. Publishing all enforcement investigations will create real fear for firms that sail close to the wind in a way that enforcement appears not to have done.
The FCA should not underestimate the potential effect of its new proposals and should bring them in a phased way, starting with the bigger firms. Appropriate controls and safeguards will be necessary.
The proposals don’t extend to investigations into individuals, and one can see why GDPR and legal concerns would make this more difficult. But the FCA should not rule out revisiting this if it determines that its approach to firms bears fruit.
Be afraid, be very afraid is a mantra we have heard before. The FCA’s new proposed approach might make it a reality.
‘View from the Chair’ is Bovill’s regular column from our Executive Chair Ben Blackett-Ord who founded the firm in 1999 and led it as CEO until 2022. Ben continues to support Bovill’s executive team and clients, as well as being a prominent figure in the industry.
