Regulation  

FCA overhauls the way it investigates firms

FCA overhauls the way it investigates firms

The Financial Conduct Authority and the Prudential Regulation Authority are introducing changes aimed at making their enforcement processes more transparent.

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 an investigation.

The regulators will also produce more detailed guidance on the process for their joint investigations.

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Mark Steward, director of enforcement and market oversight at the FCA, said: “It is essential that our enforcement decision-making processes command public confidence and operate both efficiently and fairly.

“The changes set out in today’s (1 February) policy statement are designed to achieve just that and reflect the views of stakeholders who responded to our consultation.”

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

This 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.

The FCA is also providing a mechanism for those under investigation to proceed more directly and quickly to the Upper Tribunal, providing external adjudication that is wholly independent of the FCA.

It is also abolishing penalty discounts at stage two and three of settlement, and retaining the same panel that gave the warning notice to hear representations and decide whether to give a decision notice.

Simon Morris, a financial services partner with law firm CMS, said: "While relatively minor and concerned with process rather than substance, these changes demonstrate that the regulators can view the enforcement experience from the firm’s or individual’s perspective – possibly unclear, sometimes unfocused and occasionally frightening.

"A key development is the commitment to communication. The promise to speak more often to firms and individuals undergoing enforcement about the progress, timing and direction of the case will be very welcome. 

"Enforcement remains a crude and crushing tool, and one that the regulators will continue to use in their worst cases, but today’s 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."

damian.fantato@ft.com