A House of Lords committee has warned naming firms under investigation by the Financial Conduct Authority could risk the integrity of the market and has called on the regulator to halt plans.
The House of Lords Financial Services Regulation Committee has raised concerns with FCA proposals in a letter to Nikhil Rathi, chief executive of the regulator, published today (April 22).
Lord Forsyth of Drumlean, chair of the committee, said: “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.”
In February, the FCA said it was considering naming firms under investigation at an earlier stage to increase transparency about its enforcement work and to deter wrongdoing.
The committee is also calling on the FCA to extend the consultation period on this proposal, which is currently due to close on April 30.
The committee is concerned that if firms are named but then no further action is taken it could still result in their reputations being tarnished.
It added this risks the “overall integrity of the market”.
Lord Forsyth added: “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 FCA's consultation paper on the proposals included publicly announcing when it has opened an enforcement investigation, including the identity of the subject of the investigation, as well as publishing updates, if it is in the public interest to do so.
An FCA spokesperson said: "We have been making wider changes to the way enforcement operates in order deliver more impactful deterrence and greater transparency. This includes plans to conduct investigations more quickly and with a more focused number of cases.
"We have been consulting on announcing our investigations, on a case-by-case basis, where it is in the public interest to do so. We believe doing so will give all the firms we regulate and the wider public better insight, earlier, about issues we are concerned about. Announcing more of our investigations would bring us in line with several other UK regulators.
"We have been actively engaging with parliament and industry on this consultation and welcome all feedback."
tara.o'connor@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com.
