Last year the FCA, after consultation, published its Mission: to add public value by improving how financial markets operate. The FCA gave five examples of what that meant: enhancing trust in markets; improving how markets operate; delivering a common approach to regulation; working to prevent harm; and helping to put things right when they go wrong. It promised further documents detailing its approach to authorisation, supervision and enforcement. The stated aim was to make the FCA "more transparent and accountable to the UK public".
This week the FCA has delivered on that promise by publishing two documents "Our Approach to Supervision" and "Our Approach to Enforcement" and inviting answers to the question whether those approaches are clear. Neither document contains any new policies or changes of approach, but the FCA sees both documents as important in improving its transparency and communication with the financial markets and public.
A theme of both documents is identifying problems early, stopping or limiting harm, putting right what has gone wrong and stopping it happening again. The Approach to Supervision highlights the FCA's focus on strategy and business models, culture and governance and holding senior individuals to account. The Approach to Enforcement focuses on increasing public confidence by improved detection, efficient and fair action where there is serious misconduct, use of FCA powers to put things right and encouragement of firms voluntarily to account for and redress misconduct.
The FCA recognises that increasingly severe penalties alone will not reduce or prevent serious misconduct. It aims to use the deterrent of an increased likelihood of detection. There is the stick of "more severe sanctions for those who fail to address harm". However, there are the carrots of: "not all breaches constitute serious misconduct" - many breaches can be addressed and remedied without the need for enforcement action especially where the breach is technical or minor; opening an investigation does not necessarily mean that the FCA believe misconduct has occurred or that enforcement action will follow; and the FCA are "obliged to act fairly and reasonably".
It is difficult to fault the principles eloquently expressed in these two documents. What will interest market participants is not the FCA's words, but its actions.
