FCA enforcement's great reset: "boil the kettle not the ocean"

FCA Enforcement co-heads Therese Chambers and Steve Smart have fired the starting gun on their long-awaited refresh of the FCA's interventions and enforcement strategy.

In a speech, Therese said she wants to improve market-facing messaging, and drive the FCA's own accountability, by disclosing the existence of investigations in many cases.  She wants to decrease the delay between misconduct occurring and a penalty being imposed.  She also wants to keep focusing on regulatory triage and efficiency, including ever-better use of data analytics: this, she says, is about "boiling the kettle rather than the ocean".

Accompanying this speech were a consultation paper on significant policy changes and major changes to the FCA's investigation opening criteria (which take effect straight away).

Here's the crux of it: the FCA's proposals would bring forward and crystallise some of the key risks to firms and individuals associated with enforcement action.  In particular, reputational risk and career risk for senior managers.

So it's more critical than ever for firms and individuals to proactively manage and mitigate enforcement risks.  The stakes are being raised.

Our clients can join us for a webinar on 4 March to explore the implications in more depth (if you want to come, email us).  In the meantime, here are five key aspects of the proposals and changes.

An open book

The FCA proposes to remove the long-standing presumption of confidentiality of regulatory investigations.  

This is a big change and accelerates reputational risk - one of the key enforcement risks facing firms and individuals.

The FCA has set out factors it will consider when deciding whether to publicise investigations. Notably absent: any consideration of the impact of publicity on the firm or individual.  Instead, it's all about whether disclosure is in the "public interest".

The new catchphrase: "impactful deterrence"

When deciding whether to open an investigation, the FCA used to ask itself whether serious misconduct was suspected.  

Going forward, it's asking itself a new question: whether any enforcement action would "drive impactful deterrence".

In other words: the FCA is dialling up its regulatory triage.

The FCA will ask itself the same question when deciding whether to take enforcement action (after it has investigated).  In other words, the better your co-operation and your early and effective remediation, the less likely the FCA will regard enforcement as offering “impactful deterrence”.  Alternatively, the lower the penalty that may be imposed.  This is consistent with Therese's praise for firms that "do the right thing".  It reinforces the need to pro-actively co-operate and remediate to reduce your enforcement risk.

Senior managers in the firing line

The FCA wants to take enforcement action against senior managers, recognising that such actions "have important deterrent impact".  It will pursue such cases "robustly".  

So now's the time for senior managers to redouble their efforts to mitigate enforcement risk against them personally.

Not quite the PRA's Early Account Scheme

The PRA has just introduced its Early Account Scheme (EAS) with some fanfare (read more here).

The FCA isn't following suit.  At least not quite as formally.  But it is clarifying its approach to firm-commissioned reports, including by encouraging firms to discuss their scope with the FCA and to disclose underlying material.

In practice, then, the FCA may now be more open to firms taking an EAS-like approach.  (Though higher settlement discounts, unlike at the PRA, aren't on offer.)

Out with the old

Looks like Preliminary Investigation Reports have been formally retired.  The FCA is removing all reference to them. Likewise with the FCA's little-used mediation scheme and private warnings - Mark Steward's dissatisfaction with the latter has survived his tenure.