FCA jettisons a key element of its enforcement transparency proposals - and everyone wins

The FCA is walking back much of the substance of its enforcement transparency proposals.

We've got history

Many will recall that its first set of proposals met with considerable industry backlash.  It adjusted them last November in an attempt to head this off.  

This too was met with consternation, not only from industry but also from the House of Lords which put the FCA in a corner by saying - during the second proposal's consultation period - that the proposals should not proceed unless it can show that it addressed the industry's concerns.

These things remain

The FCA dropped plans to replace its existing "exceptional circumstances" test for governing when an announcement can be made with a new broad and discretionary "public interest" test.  There were real concerns about the operation of the latter, so this is a positive development. However, the FCA will still make some more targeted adjustments allowing it to:

• Reactively confirm investigations which are officially announced by others.
• Make public notifications focusing on potentially unlawful activities of unregulated firms and regulated firms operating outside the regulatory perimeter.
• Publish greater detail of issues under investigation on an anonymous basis, potentially via a regular bulletin such as an "Enforcement Watch" (like some other regulators globally).

More good news

This development is welcome. 

The "public interest" test was essentially a solution without a problem and it could have had a significant negative impact in various ways.  Chief amongst these: the FCA - even after its recent enforcement docket rationalisation - still closes some investigations without action. As it should - it should never be the case that the FCA only investigates cases it can be confident of winning. However, this meant there was a real possibility that a premature announcement could have caused unwarranted reputational harm to regulated firms, sometimes even to their customers' detriment.

Looking beyond this: the FCA's new direction of travel here will actually enhance and promote compliance standards within the UK financial services sector and bolster consumer protections over time.  Why?  Because:

• By making public notifications focused on unregulated activities - and regulated activities undertaken without authorisation - the FCA will retain its ability to impede and obstruct fraud and scams through timely announcements.
• More frequent anonymous information about issues under investigation - for example in an "Enforcement Watch" periodical - would also be helpful.  These could substantially accelerate the FCA delivering timely educational messages to the market and consumers, as well as expediting firms' compliance improvement efforts.     

Which would be a real win for everyone.

We could use some more transparency, though

The FCA will continue to engage with stakeholders on this new direction of travel, before publishing a final policy statement by the end of June. 

There will not be a third consultation paper here.  

So if you have views then make them known to your supervisors or through relevant industry associations, law firms or others.