Legal development

A View From The Exchange: The FCA's (not so) new investigation opening criteria 

A View From The Exchange: has the pursuit of open justice gone too far?

    Whilst the talk of the (regulatory) town has been the FCA's proposal to name and shame firms under investigation, some of the other proposals in the FCA's new approach to enforcement deserve a closer look. 

    In the same breath as announcing their intention to publicly name firms under investigation, the FCA committed to conducting investigations in more timely manner to achieve its desired "impactful deterrence". 

    We have seen that the FCA is taking steps to reduce its case load (revealed in numbers published in its response to the House of Lords Financial Services Regulation Committee and its response to our recent Freedom of Information Request), but what we're really interested in is the rhetoric alongside these numbers i.e. the "new" investigation opening criteria.

    Although, spoiler alert, it's not as new as the FCA would like us to think. Like all good trends, the FCA has gone full circle on its criteria and it's even attempted to hide this by removing the old Approach to Enforcement guides from its website. Sorry FCA, we noticed. 

    The Starting Point… 

    In the wake of the HBOS report, some may remember Mark Steward's speech in September 2017 which prompted discussions on the "starting point" of investigations and, as a result, changed the FCA's approach to the opening of investigations. Investigations were being used as a "diagnostic tool" to "understand when serious misconduct may be an issue" and we saw a huge increase in the number of investigations being opened (and huge delays in the time taken for the FCA to deal with them). 

    Out with the old and in with the new? 

    Chambers and Smart have been clear that the "deterrent effect of enforcement action is greater the closer it is to misconduct occurring" which is a shift away from the old approach but the idea of deterrence isn't so new – it's just a rebranding of Tracey McDermott's "credible deterrence". 

    Reverting to old ways may seem like an obvious solution, since we're now back to the FCA being criticised for the length of time it takes to deal with cases rather than the lack of cases, but how long until its being criticised for not taking action or for cherry picking cases that are likely to have a successful "outcome"? Start placing your bets. 

    And whilst this new approach may not be as "new" as suggested, the FCA do need to be careful not to fall foul of old issues and in the words of Steward, the FCA should be cognisant to the fact that an investigator's mind at the start of an investigation "should be a quiver of arrow-like questions" rather than "what does the outcome need to be" in order to create their desired deterrence. 

    Author: Laura Bell, Associate

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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