FCA admits plan to ‘name and shame’ could have been handled better, fresh consultation in Q1

Ashley Alder, chair of the Financial Conduct Authority (FCA), has acknowledged that the regulator could have handled better its proposals to name some firms under investigation by its enforcement division. A fresh consultation will be issued in Q1 2025.

“All within the organisation acknowledged that it could have been trailed a bit better beforehand. It did not appear in the Regulatory Initiatives Grid, which is the place in which forthcoming consultations and proposals are normally positioned,” Alder said, who was appearing before the House of Lords Financial Services Regulation Committee on November 13.

Alder agreed with committee chair Lord Forsyth of Drumlean that the announcement had probably not been the FCA’s finest hour but said the proposal had also been misinterpreted and that there was “a degree of misinformation” around the plans.

FCA chief executive Nikhil Rathi said the proposal had fallen short of the regulator’s predictability test. The Regulatory Initiatives Grid, introduced in 2020 and updated in October 2022, is supposed to reduce the compliance load on firms by flagging any regulatory changes well in advance.

Overblown

Rathi said the regulator was not planning to name every firm it passed to enforcement for investigation, adding that most of these investigations were already in the public domain.

“There are approximately 47 regulated firm investigations open today. Of those, 27 are already in the public domain, because eight of them have been disclosed by us over the years and the remainder were disclosed by the firms themselves. So 60% are already in the public domain,” he said.

Rathi also highlighted instances where another regulator has announced it has a firm under investigation, but the FCA has stayed silent. “Recently, we took a fine against PwC for failing to report to us when it suspected fraud in an audit. Our partner, [the Financial Reporting Council], opened an investigation into the quality of the audit. The FRC announced it but we said nothing until the end of the investigation,” he said.

Following the committee’s call for input into its inquiry, several respondents pointed out that this was due to the different statutory underpinning of the FRC.

Fewer cases, faster turnaround

Several of those submitting written responses to the inquiry pointed out that historically two-thirds of FCA investigations resulted in no enforcement action being taken. Respondents also highlighted the length of time it took for the FCA to complete investigations. Lord Grabiner asked why the regulator felt the need to publicise investigations at the outset, if this was the case.

Historically the FCA has taken 42 months on average to complete an investigation and 67% of cases resulted in no further action, Rathi said.

“If you look at the investigations we have opened since 2023-24, a number are now completed in 13, 14, 15 or 16 months. We have brought down the number of operations from 210 to 150, so that partly explains why there was no further action. Those numbers are now coming down very fast,” Rathi said.

In the past year, there has been a clear-out of investigations opened under previous FCA head of enforcement Mark Steward. Rathi said the percentage of investigations that resulted in no further action had also fallen to 56%, and he expected this to reduce further.

No surprises

Under the original proposals, the FCA planned to allow firms 24 hours to prepare for an announcement that it was under investigation. Respondents to the call for evidence claimed this was insufficient to prepare for a possible onslaught of calls from customers and shareholders.

However, Rathi said in reality firms being passed to enforcement for investigation would have been aware they were in the regulator’s sights. “Typically, unless something very dramatic has happened, most of those investigations will have followed a year to two years of supervisory work,” he said.

Given the pushback on the original proposals, Rathi said the regulator was mindful of the effect an announcement could have on firms — especially smaller firms — and the reworked proposals extend the 24 hours to at least 10 business days.

Cost benefit analysis

Lord Eatwell wanted to know why the FCA had not asked its independent cost benefit analysis panel to carry out a CBA into its proposals.

“The reason that we put the issue of the independent CBA committees into the [Financial Services and Markets Act] 2023 was that that was an element of accountability. It seems to me this is an absolute classic case where you should be using that device with which you have been provided to investigate this particular entity. I can understand it is busy with lots of things, but this is a little hot potato that really should be your CBA committee’s responsibility,” he said.

Rathi said the regulator would “reflect” on asking the CBA panel to carry out an analysis.

An update on the proposals was imminent, he said, adding that if the FCA board decided to go ahead with its naming plan, a fresh consultation would be launched in Q1 2025.