Emma Ann HughesFeb 3 2017

FCA’s crushing enforcement powers need curtailing

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When the credit crunch caused banks to go bust and be bailed out by the nation’s taxpayers, serious questions were asked about what the regulator had been up to.

Why had the then regulator, the Financial Services Authority, failed to catch, act, censure, fine or ban these naughty bankers before they were able to cause the country to tumble into a recession?

When asked this question, the regulator denied it had been asleep at the wheel, pointed back at the government and complained about a lack of power to take action to tackle bad bankers.

Then prime minister Gordon Brown decided what was needed was a new, all-action City watchdog in the form of the Financial Conduct Authority.

It is crazy that you could be subject to an investigation and be unsure about why your activities were being looked into.

At the shiny new regulator’s first public meeting I was greeted by an array of men in suits taking to the stage promising they were different from their predecessors – they would be men of action.

The reality is these men had more power given to them by the government than their predecessors.

Power can be a good thing – but too much of it and things can explode in your face.

So I feel the news this week that the Financial Conduct Authority and the Prudential Regulation Authority are having these powers curtailed and introducing changes aimed at making their enforcement processes more transparent is to be welcomed.

Among the changes planned by the two watchdogs are the provision of more information to the subject of an investigation about why they have been referred and regular updates throughout the probe.

It is crazy that you could be subject to an investigation and be unsure about why your activities were being looked into and be left for months on end clueless about what the heck is going on.

The FCA is also introducing a process for partly contested cases.

This is fantastic news.

The regulator’s new approach will allow a person under investigation to agree certain elements of a case (such as penalty, facts, liability or a combination of these) and contest the other elements before the Regulatory Decisions Committee.

The firm being looked into will still have the ability to obtain a discount on the penalty that will reflect the extent that issues have been agreed.

It is about time this happened. 

Essentially, what was sometimes going on at the regulator was the equivalent of the police saying you had been caught on a speed camera going two miles per hour over the speed limit and if you pay £150 now then that will be the end of the matter.

You may well have known your speedometer and Satnav said you were going less than 30 miles per hour but you knew if you wanted to challenge what the police were saying you would have to go to court, pay a lawyer and risk points on your licence if the judge chose to believe the police’s camera rather than you.

Was that right? Was it fair? Was it just?

Over the last few years I know of several firms that were frustrated by the fact they didn’t agree with all the mud slung at them by the regulator.

But these firms/individuals knew if they didn’t agree to settle at an early stage they could be dragged under by a bigger fine that would be dolled out if they didn’t win an argument with the regulator over the issues they wished to contest.

I hope what the FCA is now doing with partially contested case will tackle that injustice.

As Simon Morris, a financial services partner with law firm CMS, beautifully summarised: "Enforcement remains a crude and crushing tool, and one that the regulators will continue to use in their worst cases, but this statement will help both firms and individuals suffering the process to have a better understanding of what is happening and their options to manage it.”

In this day and age, clearer communication is the order of the day.

emma.hughes@ft.com