A View From the Exchange: Enforcement Watch

Enforcement Watch

The idiom "all good things must come to an end" could be used to describe PS 25/5, the FCA's updated Enforcement Guide which, we hope, will be the final chapter of the "naming and shaming" saga. The market will be forgiven for not picking up on the other proposals set out in CP24/2 and CP24/2 Part 2 but, in light of the new Enforcement Guide, what initial proposals have been implemented?

As expected, the FCA's 180 resulted in the "exceptional circumstances" test being retained, however this now comes with three exceptions. The FCA can announce investigations in the following scenarios:

• where there has been suspected unauthorised activity or criminal offences related to unregulated activity; 

• on an anonymised basis (i.e. without naming the subject of the investigation); and

• confirm that it is investigating a subject if the investigation has already been made public (e.g. by the firm or another regulatory body).

We're expecting the FCA will take advantage of these exceptions by publishing an "Enforcement Watch" to educate the market of the types of misconduct that are being investigated.

Two other procedural changes that have caught our attention are:

• The FCA can refuse to allow legal advisers to attend compelled interviews where it feels that it could prejudice the investigation (for example, if the same adviser is representing two or more individuals). The practical impact here may be minimal on the basis that (a) lawyers have their own professional duties to adhere to in which they would consider potential conflicts before acting and (b) the FCA’s current approach appears to be to carry out interviews only if absolutely necessary.

• The FCA have transitioned from a starting presumption that there will always be a scoping meeting towards deciding whether one is necessary on a case-by-case basis. The FCA will generally hold one if requested by the subject of the investigation. Again, we think this will have a minimal impact as most investigations will still require a scoping meeting or the subject will request one (not least because it is of benefit to the subject of the investigation to meet with the case team at an early stage).

As well as the policy changes, we were interested to see the updates on the FCA's strategic progress. The PS notes that the FCA has:

• Closed five cases in 16 months compared to 42 months in 2023/24;

• Decreased its caseload by 35% since April 2023; and

• Not closed any investigations since April 2023 without taking further action.

But what does this mean? Potentially that it is cherry picking cases where it can achieve a quick outcome. That’s not to say this is the wrong approach but I return to the words of Steward's speech from September 2017 which I've written about previously in the context of the FCA's investigation opening criteria – the regulator should be careful that it is not just opening investigations with the mindset "what does the outcome need to be".