UK Financial Services Regulation Committee urges FCA to halt plans to publicise enforcement investigations

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. This is the committee’s first intervention since its creation earlier this year.

In a letter to Nikhil Rathi, Chief Executive of the Financial Conduct Authority (FCA), published today (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 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, 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.

“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,” said Lord Forsyth of Drumlean, Chair of the Financial Services Regulation Committee.

“’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.

“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.”

The Financial Services Regulation Committee was created in early 2024 following the passing of the Financial Services and Markets Act 2023 (FSMA 2023) which repealed retained EU law for financial services and established a new framework for the regulation of financial services in the United Kingdom.

The committee is chaired by Lord Forsyth of Drumlean. Its members are: Baroness Bowles of Berkhamsted; Baroness Donaghy; Lord Eatwell; Lord Grabiner; Lord Hill of Oareford; Lord Hollick; Lord Kestenbaum; Lord Lilley; Baroness Noakes; Lord Sharkey; Lord Smith of Kelvin; and Lord Vaux of Harrowden.

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