In February 2024, the Financial Conduct Authority (FCA) opened a consultation ‘CP24/2: Our Enforcement Guide and publicising enforcement investigations – a new approach’. The FCA is looking to change the way it publicises its enforcement work when it comes to penalising non-compliant financial institutions. The proposal includes announcing the opening of new enforcement investigations publicly, even if the organisations being investigated end up not being penalised.
What changes does the FCA propose in CP24/2?
The key changes of the proposal include:
- The FCA might identify the institution under investigation, alongside a summary of the potential misconduct.
- Investigations into individuals will be treated with more sensitivity due to data privacy laws, and will only be announced in exceptional circumstances.
- Announcing investigation progress updates will be taken on a case-by-case basis.
Why is the FCA looking to publicise enforcement investigations?
- Enforcement action is not simply about individual instances of punishment. Its greatest impact is as deterrence, and in educating the whole market on what they expect, and where others have fallen short.
- Transparency about what they are investigating further helps to reassure, educate, and drive accountability.
- The FCA aims to be clearer about the types of misconduct they think warrant a formal investigation.
- “There can inevitably be some time between the misconduct and harm we identify, and the announcement of our resulting interventions and sanctions. We currently publish very little information about the investigations we have opened that lead to those actions.”
- “Even when our investigations lead to no public regulatory or other outcomes, we consider that firms we regulate would benefit from a greater understanding of the types of suspected misconduct and other failings we consider should be investigated.”
What is the response to the FCA’s CP24/2 consultation?
Since opened to the public, the FCA have received some criticism for the proposal to make the names of financial institutions being investigated public. In particular, the House of Lords Financial Services Regulation Committee published a letter to Nikhil Rathi, Chief Executive of the FCA on April 22. The letter states that ‘the FCA’s plan to announce the opening of new enforcement investigations could have a highly negative impact on firms subsequently cleared following a potentially lengthy investigation’.
There is concern across the industry that the changes could have sizeable impact on the UK economy. While the FCA aims to advance the UK economy in the medium to long term, opponents argue that the changes could risk the overall integrity of the market, including through possible share price fluctuations.
What does the FCA’s CP24/2 consultation mean for financial institutions?
One of the of the biggest challenges for financial institutions in the UK is the volume of alerts they must investigate before filing Suspicious Activity Reports (SARs), making it easier for potential financial crime to occur undetected.
One of the most effective ways of better identifying potentially suspicious behaviour, and better prioritising alerts for investigation, is to apply the learnings about emerging threats from regulatory action and law enforcement investigations to AI models that detect unusual patterns of behaviours and transactions throughout the customer lifecycle and across market segments.
The current feedback loop on the types of alerts considered worthy of investigation by law enforcement, and the outcomes of those investigations lacks the velocity and detail necessary for financial institutions to benefit from the insights generated during the investigations.
The feedback loop from law enforcement to FIs is currently the least developed amongst the key players combatting financial crime. The proposals from the FCA have the potential to close that loop, and drive drastic improvements in financial crime compliance (FCC) efficiency and effectiveness.
A structured database of insights available to participating financial institutions would further the FCA’s aims on reducing and preventing serious harm in the detection and reporting phase, before law enforcement involvement. Increased collaboration by feeding these data points and insights into the excellent collaboration and innovation work spearheaded by the FCA, such as its work on cataloguing AML typologies, and the Synthetic Data Expert Group under the Innovation Advisory Group (IAG) would mean that learnings from law enforcement could be absorbed into AML efforts at the cutting-edge of innovation.
Learn more about using synthetic data to combat financial crime compliance in our eBook ‘3 Ways Synthetic Data is Revolutionising Financial Crime Compliance’.
Photo by Sean Sinclair on Unsplash
