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The Financial Conduct Authority (FCA) is one of the United Kingdom’s key financial regulators, responsible for ensuring fair, transparent, and trustworthy financial markets. As part of its enforcement approach, the FCA investigates potential breaches of financial regulations but has traditionally kept these investigations confidential unless there were “exceptional circumstances.”.
What are the recent changes FCA has made to this approach, and what does it mean for financial institutions?
In February 2024, the FCA proposed increasing transparency in its enforcement investigations by publicly announcing enforcement cases where it believes doing so is in the public interest. The aim was to
- Enhance consumer protection by providing timely information about misconduct risks.
- Reassure consumers and market participants that through sucg transparency, that the FCA is taking appropriate and prompt action.
- Improve regulatory accountability and build trust in the system.
- Encourage whistleblowers and witnesses to come forward with relevant information.
Read more about the original proposal: What does the FCA CP24/2 consultation mean for financial institutions?
Backlashes to the ‘naming and shaming’ proposal
The February 2024 proposal received significant feedback from stakeholders, including financial institutions, trade associations, consumer advocacy groups, and policymakers. Concerns were raised about the potential negative impact on firms, including reputational damage, market instability, and financial consequences if investigations were announced prematurely.
Respondents argued that since historically many FCA investigations resulted in no further action, naming firms under investigation could wrongly tarnish their reputations. They also raised concerns that public disclosure of an investigation into a listed company could negatively affect share prices and investor confidence, potentially leading to financial instability.
In response to this feedback, the FCA has revised its proposals to strike a balance between transparency and fairness to firms under investigation.
What are the key changes in the revised proposal?
FCA is now making four significant changes to its initial proposals:
1. Public interest test enhancement
The FCA is proposing that the impact of an announcement on the relevant firm will form part of its public interest test. Factors such as market stability, financial system risks, and reputational harm will be carefully weighed.
2. Extended notice period for firms
FCA is suggesting that firms will be given at least 10 business days (instead of just 1 day) to review and respond to a copy of the drafted announcement. If the FCA decides to proceed with an announcement, firms will receive an additional 2 business days before publication.
The new proposed period will also give firms time to consider whether they want, or are required, to make an announcement themselves or make representations that they should be able to do so, for example on a timetable aligned with their wider financial announcements.
3. Market stability considerations
The FCA will explicitly assess whether an announcement could cause serious market disruption or damage public confidence before proceeding.
4. No retroactive announcements
The FCA will not be making proactive announcements of investigations that are already ongoing, unless reactively confirming investigations they are already publicly known. The proposed policy will only apply to new investigations opened after implementation.
How can financial institutions be prepared proactively?
If the FCA’s revised proposal for publicising enforcement investigations is implemented, financial institutions; particularly regulated firms will need to adapt their risk management, communication strategies, and internal controls to mitigate potential negative impacts.
1. Proactive regulatory compliance and internal controls
Regularly audit financial crime controls, AML systems, and governance structures to identify weaknesses. Anti-money laundering compliance solutions like Napier AI Continuum ensure scalability with business needs, accommodating evolving regulatory demands and increasing data volumes. The NextGen screening and monitoring solutions on the platform are powered by compliance-first AI, and auto-collates SARs for regulatory reporting.
2. Strengthen crisis communication and reputation management
Establish internal and external crisis communication protocols to reassure clients, employees, and investors in the event of an investigation announcement. Anticipate likely questions from journalists, analysts, and regulators, and have prepared responses to avoid any speculation.
3. Scenario planning and financial stability measures
Financial firms should anticipate worst-case scenarios and build resilience against regulatory disruptions by planning financial buffers. Assess any liquidity risks, client withdrawals, and market volatility scenarios if an FCA investigation is announced.
The FCA’s proposed changes to enforcement transparency highlight a fundamental truth: compliance is no longer just a regulatory necessity, it’s a business imperative. As financial institutions face the prospect of earlier public scrutiny, those that proactively strengthen their compliance frameworks will not only avoid regulatory investigations but gain a competitive advantage.
Investing proactively in advanced compliance technology, such as Napier AI Continuum enables firms to detect and mitigate any risk before they escalate into enforcement actions and position themselves as trustworthy market leaders.
Learn more about Napier AI Continuum
