House of Lords boxes in FCA over investigations transparency proposals

The saga continues.  After the FCA made its initial proposals to publicise ongoing investigations, uproar ensued.  The FCA watered them down in some important ways, but financial services industry opposition continues.

Now the House of Lords Financial Services Regulation Committee has made life more difficult for the proposals.  Their report expresses concern about the quality of the FCA's industry consultation on the proposals, then says in essence that the FCA should not proceed with them unless it can show that it has addressed the industry's concerns.

This isn't just a strident objection.  It's also a canny political move.  The Committee published its report whilst the consultation on the watered down proposals is still open - it closes in a week or so.  This invites anyone still working on a (negative) response to the consultation to really go to town. Essentially, a self-fulfilling prophecy.

For those working out where their draft response might already align with the House of Lords' objections, here are the key ones in a nutshell:

• The test: it is unclear why the existing "exceptional circumstances" test wouldn't already permit publication to prevent consumer harm, or why a broader interpretation of "exceptional circumstances" couldn't be used in place of a new "public interest" test.  Questions remain about the level of discretion the "public interest" test affords the FCA and how consistent decision-making can be assured.
• Growth and competitiveness: the HOL challenges the FCA to undertake a costs analysis (not just a benefits analysis) and address how the proposals align with its secondary international competitiveness and growth objective.  The proposals would position the UK as an outlier amongst other financial regulators both domestically and internationally and cause reputational damage regardless of the investigation outcome. A related point potentially impacting the UK industry's ability to attract talent: there is inherent risk in identifying senior individuals (if not expressly then readily by implication), causing reputational damage regardless of the investigation outcome.

What seems to have been most deleterious for the FCA here is its failure to articulate the proposal in terms of growth. The House of Lords noted that the FCA had not convincingly explained how the proposal aligned with its growth and competitiveness, nor had it consulted with HMT during the initial development of these proposals. There are strong arguments that announcing investigations will undermine trust in the sector in circumstances where no definitive misconduct has been proved. 

Inspired to respond to the consultation yourself?  Click here.  It closes on 17 February 2025.