How to prepare for a dawn raid by the FCA

These include the power to conduct “dawn raids” or, more precisely, the power to enter and search premises (and, in some circumstances, private homes), without advance notice to the firm (or individual) in question, in order to obtain documents and other information.

Recent data indicates that for the first six months of 2023 the FCA conducted six such dawn raids, compared with only two for the entirety of 2022. 

Even leaving aside the apparent dip in dawn raids in 2022, data for prior years suggests a gradual increase in the FCA’s use of these powers, which the FCA has referred to as “vital”. 

It is unclear whether this increase can be associated with the expansion of the FCA’s enforcement and market oversight leadership team, following Mark Steward’s departure, by the appointment in March 2023 of Therese Chambers and Steve Smart as joint executive directors. 

However, it does appear consistent with the FCA’s stated aim “to become a more assertive, more adaptive and more innovative regulator” and the focus in the FCA’s 2023 business plan on reducing and preventing financial crime and market abuse (among other enforcement priorities).

It is essential that firms develop a thorough understanding of what a dawn raid entails and proactively prepare internal response plans

Although we focus on the FCA below, it is by no means the only authority empowered to conduct dawn raids.  Other regulatory or criminal authorities with powers to conduct searches of premises without warning include HM Revenue & Customs, the Serious Fraud Office and the Competition and Markets Authority.

Practical steps

A dawn raid can place a firm and its employees under significant pressure, across numerous parts of its business. It is, therefore, essential that firms develop a thorough understanding of what a dawn raid entails (including the FCA’s powers and limits), and proactively prepare internal response plans. 

A number of suggested practical steps are outlined below, although much will depend on the precise circumstances at hand. For information on responding to FCA investigations more generally, please see our previous article: How the FCA is bringing rule breakers to justice.

The FCA’s ability to conduct dawn raids arises under s.176 of the Financial Services and Markets Act 2000, which empowers the FCA to apply for a search warrant to allow it to enter premises in order to obtain evidence. 

The warrant may be granted where there are reasonable grounds for belief, for example, that certain prescribed offences have been or are being committed by any person, relevant documents or information are on the premises in question and any information requirement would not be complied with (or the relevant documents would be removed, tampered with or destroyed); or where a person has failed to comply with a requirement to produce such information. 

Typically, the warrant will empower the FCA to enter the premises, search for, take possession or copies of and/or preserve any documents or information covered by the warrant, and require any person on the premises to explain any such information and/or confirm its location. 

There are criminal sanctions for non-compliance, including (among other things) where a person intentionally obstructs execution of the warrant, knowingly or recklessly provides information that is materially false or misleading, or falsifies, conceals or destroys a document that he knows or suspects to be relevant (or causes the same). 

Even so, it is vitally important that firms are equipped to protect their legal rights in the context of dawn raids, including understanding the limits on the FCA investigators’ powers.

Forming a response plan

On a proactive basis, therefore, firms should develop an internal response plan. This should identify an internal team that will be responsible for coordinating responses to the investigators during a raid, generally including representatives of senior management, as well as in-house legal, compliance and IT personnel. 

External counsel should also be designated, and appropriate out-of-hours contact information made available, in the interests of ensuring that the firm has available appropriate expertise and resources on an urgent basis. 

Periodic training in responding to dawn raids (including for reception personnel, who may be the first to encounter the investigators) and keeping relevant policies up to date is also recommended. 

On the arrival of the investigators, key initial steps will typically include alerting members of the internal team in accordance with the response plan (who can then liaise with external counsel and others as necessary) and obtaining copies of the warrant and any other authorisation documents. 

Initial communications between senior members of the response team and investigators will be key, both for understanding the extent of the investigation and any particular areas of focus, and for agreeing any timeline for the search (for example, to allow external counsel or specialist personnel to arrive, and/or to manage logistics such as meeting rooms for the exclusive use of the investigators and any IT requirements). Notes should be kept of all substantive communications with investigators.

Senior management should be made aware of the dawn raid. In general, however, all relevant employees should treat information concerning the raid as strictly confidential and not for wider dissemination inside (or outside) the firm without authorisation from the response team (who may need to discuss this with the investigators).

The warrant should be carefully reviewed by the response team and external counsel, both to ascertain the scope and limits of investigators’ powers, and to identify any relevant particulars (for example, which specific legal entity or entities and premises are covered).

The response team and external counsel should assign individuals to "shadow" each of the investigators during the raid, keeping detailed notes of documents or other materials that are searched, copied and/or seized, as well as substantive interactions with firm employees. 

Ideally, any potentially damaging (or otherwise highly significant) documents identified by investigators should be copied and escalated to the legal team for further review. It will also be preferable for any interviews with employees to take place in the presence of legal counsel. 

The limits of power

The response team, and those shadowing investigators, should be aware of the limits of investigators’ powers. 

For example, certain materials may fall outside the terms of the warrant and/or be protected from disclosure by legal privilege (for example, under s.413 FSMA, lawyer-client communications in connection with giving legal advice, or communications between a lawyer, client or third party for the purposes of actual or contemplated legal proceedings). 

Depending on the material in question, there may also be data privacy considerations. Where there is any disagreement, the question should be escalated to in-house and/or external legal personnel, and the firm may need to inform the FCA that it is reserving its rights to object in respect of certain documents.

At the conclusion of the raid, it is advisable to confirm next steps with the FCA, such as steps to deal with any outstanding factual points or materials, or any documents that the firm maintains should be withheld (eg on the basis of legal privilege). 

The firm’s own next steps should also be carefully assessed, such as undertaking a risk assessment, and/or any additional internal investigation, concerning issues identified in the raid, any obligations to notify regulatory authorities, any requirements for internal or external communications and any steps in relation to potentially implicated employees.

Overall, given the indications that the FCA is adopting a more assertive stance in general, including making greater use of its dawn raid powers, firms would be well advised to assess their preparations, conduct any additional training (potentially including a mock dawn raid) and ensure they are equipped with appropriate internal and external resources and advice.

William Charles is a partner and Conrad Marinkovic is an associate at Milbank