FCA Consults on Publishing Information About the Opening and Progress of Investigations

The U.K. Financial Conduct Authority has published its proposed approach to publishing information about the opening and progress of investigations.¹  The proposals represent a marked departure from the FCA’s current practice to keep information pertaining to its investigations confidential and non-public.

The Current Approach

Under the current regime, the FCA only publishes information about active investigations prior to regulatory outcomes in “exceptional circumstances”. There have been some examples recently of the FCA making announcements about ongoing investigations, but the reasons for doing so have generally been clear: for example, following a statement by a firm to a foreign stock exchange stating that it had been issued with a draft Warning Notice, the FCA confirmed the same in a press release.

The Proposals

The FCA’s proposals appear to be a significant departure from the current practice. In particular, the FCA is proposing to publicly announce (i) that it has opened an enforcement investigation into a particular firm, identifying the firm, and (ii) updates on the investigation, if the regulator thinks that it is “in the public interest to do so”. The FCA is not proposing to publish details about investigations into individuals.

In assessing the public interest, the FCA is proposing to consider several non-exhaustive factors, including whether this would enable the interests of customers/investors to be protected, whether it might encourage whistleblowers or witnesses to come forward, whether it would address public concern or speculation or provide reassurance that the FCA is taking appropriate action, and whether it would deter future breaches.

Specifically, the FCA states that it has not included in this list of public interest factors what effect this announcement might have on the investigation subjects.

Comment

The proposal is highly controversial and will almost certainly receive significant pushback from market participants.

Whilst it is understandable that the FCA may want to make these disclosures to enhance the public perception of the regulator itself, it is not clear why the FCA believes that a named disclosure of a subject under investigation is necessary or appropriate to satisfy the public interests it puts forward. This is particularly true given that there are clearly less-intrusive alternatives which would appear to further the public interests identified, which the FCA does not appear to have considered.

In addition, several legal and practical concerns may drive objections to this proposal, including:

• A significant proportion of the investigations opened by the FCA lead to no further regulatory action being taken. This decision to take no further action may come at a significant time, in some cases, years, after the investigation was opened. Potential reputational damage may not be wholly mitigated even by a subsequent finding by the FCA that no wrongdoing has in fact taken place.
• It is unclear whether the proposal is consistent with the confidentiality requirements applicable to the FCA under the Financial Services and Markets Act 2000 (FSMA). For example, whilst the FCA proposal ostensibly excludes investigations into individuals, sometimes individuals are inherently identifiable from any description of the investigation. FSMA recognises this and grants individuals “third party rights” under section 393 by the time that a Warning Notice is issued, but the FCA appears to make no reference in its Consultation Paper to these rights being considered at the time it is considering publication.
• The FCA’s affirmative position in respect of the proposals is that it will not consider the detrimental effects publication may have on the firm. It is not immediately clear how this position with investigation subjects’ reasonable expectations of privacy (especially in criminal cases brought by the FCA) or with rights protected by the Human Rights Act 1998 and may be subject to legal challenge.

^{1 https://www.fca.org.uk/publication/consultation/cp24-2.pdf.}