FCA Updates – ‘Assertive’ Supervision, and About Turns

With special acknowledgment to Aaron Brooks for his contribution.

Key Takeaways

• The FCA enforcement landscape has shifted dramatically under the oversight of the (now not so new) joint Directors of Enforcement, moving away from traditional enforcement action and towards more “assertive” supervisory action.
• The FCA has dropped recently proposed changes, including rules about ‘naming and shaming’ regulated firms under FCA investigation, as well as diversity and inclusion initiatives.
• Long-awaited rules on non-financial misconduct have been delayed again, despite it becoming a strategic priority for the Regulator. The next steps on the FCA’s approach to non-financial misconduct are expected in June 2025.
• The UK government announced the abolition of the Payment Systems Regulator (PSR), as part of its wider deregulatory agenda. The main functions of the PSR will be consolidated into the FCA.

FCA Enforcement Landscape in 2025

We are now starting to see a real shift in the UK Financial Conduct Authority’s (FCA) Enforcement strategy following a changing of the guard in 2023, which brought in Therese Chambers and Steve Smart to be Joint Executive Directors of Enforcement and Market Oversight, with a significant shift away from formal enforcement action and a move towards powerful and less procedurally clear “assertive” supervisory action.

Ms. Chambers signalled that this approach would be coming since early in her tenure, when she noted that the FCA would be deploying “plenty of other powerful tools” aside from enforcement action to tackle harm, and that formal enforcement action would be reserved for a “streamlined portfolio of cases through which [the FCA] can deliver the greatest deterrent impact.”¹

Whilst the FCA has changed the way it reports enforcement statistics and so like-for-like statistics are not always easy to find, we know that there has been a significant decline in the last two years. As of 1 April 2023 the FCA had approximately 590²  open enforcement cases (where there can be more than one investigation into the same matter, for example an investigation into a firm and an individual about a related issue) in relation to 224 investigations.³  By 31 March 2024, the numbers had fallen to 503 open investigations, relating to 188 operations,⁴  and seven months later on 31 October 2024, the number was down yet further to 406 open investigations (135 into firms, 271 into individuals).⁵  This constituted a drop of nearly a third in 18 months.

There then appears to have been a further significant drop, with the FCA reporting that as of 11 March 2025, there were only 37 open investigations into firms.⁶

For those investigations into regulated firms opened since April 2023, none have closed with a “no further action” outcome: whilst early days, this would be consistent with the FCA’s stated aim to focus its enforcement resources on the most serious cases, particularly financial crime, and a move away from the previous regime where “no breach was too small” to open an investigation.⁷

This decrease in enforcement activity has been met with a corresponding increase in supervisory actions. Whilst the Regulator does not have the power to fine firms through supervisory actions, the potency of supervisory action should not be underestimated, with the Regulator able to require changes to process, reviews of past conduct, prevention of firms taking on new customers, and more. In some cases, these supervisory mechanisms can be existential for firms.

Voluntary Requirements (VREQs) which require firms to ‘voluntarily’ agree to certain restrictions (for example, not taking on new business until systems and controls issues are addressed) are a powerful tool for the Regulator, and their use has been increasing steadily already: VREQs were up to 100 in 2023/2024, compared to only 82 in 2022/2023.⁸  Although VREQs are often not quite as ‘voluntary’ as the name might suggest, the Regulator can also unilaterally impose requirements under its Own-Initiative Requirement (OIREQ) power, should a firm not agree to a VREQ.

Whilst firms may welcome the more focused approach to investigations, the FCA’s greater reliance on supervisory action throws up a range of novel issues. Enforcement action has well-established rules and procedural safeguards in place, including under statute; the same is not true for aspects of supervisory action. As the Complaints Commissioner recently concluded, “the FCA has no written policies and procedures in place in relation to VREQs”⁹.  Interestingly, the uptick in opaque supervisory action, whereby the FCA will engage bilaterally with authorised persons to determine the appropriate action in confidence, contrasts with the FCA’s emphasis on openness and transparency, including in its previous ‘name and shame’ proposals (albeit that they have now been jettisoned, see further below). The shift towards greater supervisory action will do very little by way of transparency; rather, firms will have to navigate unchartered territory, with limited insight into the FCA’s approach to supervisory action with similar firms.

One of the principal reasons given for the move towards supervision rather than enforcement is to increase the speed of regulatory action: as a result, firms need to be in a position to engage quickly and confidently with the Regulator. Even routine inquiries by the Regulator should now be approached with particular caution in the knowledge that whilst an approach may still appear to be an innocuous request for information, it may now instead conceal a much more serious concern on the part of the FCA.

Firms should also be aware that the Treasury has recently highlighted its use of on-site visits, particularly in relation to anti-money laundering, with 10% of supervised firms being subject to direct supervisory action in 2023-2024, compared to 6% in 2022/23.¹⁰

Unlike enforcement actions, supervisory action can take effect immediately or very quickly, and challenging such action (including through the Upper Tribunal) is unfamiliar to many. Firms are well-advised to have in place procedures to ensure that they know how to respond to any supervisory action swiftly.

FCA Reverses Course on Previous Proposals: ‘Name and Shame’ and Diversity and Inclusion Rules

In February 2024, the FCA published proposals to publicise investigations into regulated firms, before any conclusions on misconduct were reached, in an effort to bring about greater transparency. These proposals—dubbed the ‘name and shame’ proposals—faced significant backlash from industry and Parliament, owing not least to potential reputational and financial consequences arising out of an investigation which may ultimately not find any wrongdoing.

The FCA softened its proposals in November 2024, including more headroom for firms to make representations against publication. Following continued criticism, however, the FCA recently reversed course entirely on its proposals, citing “the lack of consensus” on the ‘name and shame’ rules.¹¹  As a result, the FCA will continue to use its existing ‘exceptional circumstance test’ to determine whether investigations into regulated firms should be publicised (rather than the much looser proposed ‘public interest test’).

On the one hand, it is unsurprising that the FCA opted to drop the proposals, not least because of the industry condemnation but also because of the political and regulatory background. The UK Parliament and government has repeatedly critiqued the FCA’s proposals, amidst a broader growth-focused policy that brings the FCA’s secondary objective—facilitating international competitiveness and growth—to the forefront. On the other hand, few would have anticipated a complete volte-face with regards to the proposals, especially since the FCA released its watered-down proposals in November 2024. However, it is refreshing (and welcomed) to see that the FCA seems to have taken on board the feedback.

In a similar move, the FCA announced that it has dropped its proposed diversity and inclusion rules which were proposed in a Consultation Paper all the way back in September 2023.¹²  The FCA has said that, rather than introducing its own rules to promote diversity and inclusion within regulated firms, it will instead align itself with incoming legislative policy and “continue to support voluntary industry initiatives”¹³  related to diversity and inclusion to avoid additional costs and duplication of effort for firms.

Non-Financial Misconduct

As has been the case for other UK professional regulators, non-financial misconduct has been high on the FCA’s agenda for some years now, including as a result of the #MeToo movement. The FCA consulted on new proposals for non-financial misconduct rules in September 2023 (originally in the same Consultation Paper dealing with diversity and inclusion).¹⁴  Thereafter, in February 2024, the FCA sent a survey to over a thousand firms, and reported on this survey in October 2024.¹⁵

The survey found that non-financial misconduct was on the rise in regulated wholesale financial services firms. As Emily Shepperd, Chief Operating Officer at the FCA, stated in February 2025, “failings in culture and governance” are the “root cause” of failures of consumer protection and market conduct. Failure to tackle non-financial misconduct was also considered to be indicative of “a firm’s wider decision-making and risk management.”¹⁶

It was previously expected that specific rules on non-financial misconduct would be published in Q4 2024,¹⁷ then this was pushed back to “early 2025.”¹⁸  The FCA has now announced that there will be a further delay in the publication of any new rules as the Regulator takes “some further time to get this right,”¹⁹  with next steps expected by the end of June 2025.

Whilst the timeline for clarity on the FCA’s approach to non-financial misconduct has been extended, given the FCA’s persistent focus on the subject, firms should continue to prepare for and deal with non-financial misconduct in light of the guidance which already is in place, even though it remains ambiguous in parts. In particular, firms should consider:

• Reviewing and updating internal policies and procedures to ensure sufficient coverage on non-financial misconduct issues, such as bullying and harassment, with clearly defined whistleblowing and disciplinary processes.
• Reviewing any particular non-financial misconduct risks within the business and introducing appropriate safeguards and risk management procedures.
• Conducting regular training to members of staff at all levels regarding non-financial misconduct.

Folding the Payment Systems Regulator into the FCA

On 11 March 2025, almost 10 years after its launch, the UK government announced the abolition of the PSR. The main functions of the PSR will be consolidated into the FCA, aiming to tackle the issue of firms “having to engage with three different regulators, costing them time, money and resource.”²⁰ Nikhil Rathi, the Chief Executive Officer of the FCA, also announced that the FCA will work closely with the government, the Bank of England and the wider payment sector to “ensure the transfer of any powers is smooth” when the time comes.²¹  The move falls in line with the UK government’s persistent deregulatory agenda, hyper-focused on ideas of economic growth and greater living standards. In particular, in its announcement of the abolition of the PSR, the government acknowledged the disproportionate impact of several regulators on smaller businesses looking to scale and grow in the UK.

The PSR has played a key role in developing Open Banking, opening up access to payment systems for new entrants and operationalising protections against fraud. In January 2025, just a couple of months before its abolition, the PSR announced its strategic focuses until 2027, including working to upgrade the Faster Payments system and reform of Pay.UK.²²  It is yet to be understood how exactly the functions and strategy of the PSR will be consolidated into the FCA. However, the UK government is expected to consult on the details of this proposal during Q3 2025, with no immediate changes to the PSR’s remit or ongoing work.

Key Considerations for Firms

• As the FCA continues to shift its enforcement approach to more assertive supervisory action, firms should ensure any engagement with the Regulator is taken seriously and familiarise themselves with the various tools the FCA may seek to deploy. Where firms have not already conducted risk management and compliance audits, they should do so to ensure they are well-positioned to demonstrate effective compliance to the FCA.
• When a firm receives a supervisory request, they are now well-advised to treat this in a similar way to how they would previously have treated a Memorandum and Notice of Appointment of Investigators. This will be an over-reaction in some circumstances, but the risks of not doing so—particularly the FCA taking aggressive supervisory action—means that these can no longer be treated as routine activities within the normal course of a regulator/supervised firm relationship.
• Whilst the FCA has abolished the ‘name and shame’ proposals, firms should be conscious of the pre-existing ‘exceptional circumstances test’ used to publicise investigations into regulated firms and how the FCA may push the limits of this test to publicise investigations. Firms should be ready to defend against publication in the event of an investigation.
• Dealing with non-financial misconduct should not be dismissed, despite the FCA’s delay on publication of rules and guidance. Firms should use this opportunity to ensure that they are well prepared for non-financial misconduct to be on the top of the FCA’s radar, particularly once next steps are announced. Preparatory work could include reviewing and, if necessary, updating policies and procedures, considering risk management processes and conducting regular staff training.

^{1 https://www.fca.org.uk/news/speeches/evolving-enforcement-approach-protect-grow-markets.}

^{2 In one place in the document the FCA says there are 589; in another 591.}

^{3 https://www.fca.org.uk/data/fca-operating-service-metrics-2022-23#lf-chapter-id-enforcement-data-2022-23.}

^{4 https://www.fca.org.uk/data/fca-enforcement-data-2023-24.}

^{5 https://www.fca.org.uk/freedom-information/information-enforcement-investigations-december-2024.}

^{6 https://www.fca.org.uk/publication/correspondence/letter-enforcement-diversity-tsc.pdf (note that this relates to firms only, and not firms and individuals, and so the total number of investigations will be higher).}

^{7 https://www.fca.org.uk/publication/correspondence/letter-enforcement-diversity-tsc.pdf.}

^{8 https://www.fca.org.uk/data/fca-enforcement-data-2023-24.}

^{9 https://frccommissioner.org.uk/wp-content/uploads/202201756-Issued-19-July-2024.-Published-15-August-2024.pdf.}

^{10 https://assets.publishing.service.gov.uk/media/67d04713dbe565b4fe307835/AML_Annual__Report.pdf.}

^{11 https://www.fca.org.uk/publication/correspondence/letter-enforcement-diversity-tsc.pdf.}

^{12 https://www.fca.org.uk/publication/consultation/cp23-20.pdf.}

^{13 https://www.fca.org.uk/publication/correspondence/letter-enforcement-diversity-tsc.pdf.}

^{14 https://www.fca.org.uk/publication/consultation/cp23-20.pdf.}

^{15 https://www.fca.org.uk/data/culture-non-financial-misconduct-survey-findings.}

^{16 https://www.fca.org.uk/news/speeches/culture-contagious.}

^{17 https://www.fca.org.uk/publications/corporate-documents/regulatory-initiatives-grid/interim-update.}

^{18 https://committees.parliament.uk/publications/45937/documents/228204/default/.}

^{19 https://www.fca.org.uk/news/statements/update-fca-enforcement-transparency-proposals.}

^{20 https://www.gov.uk/government/news/regulator-axed-as-red-tape-is-slashed-to-boost-growth.}

^{21 https://www.fca.org.uk/news/statements/nikhil-rathi-ceo-fca-government-announcement-future-payment-systems.}

^{22 https://www.psr.org.uk/publications/psr-strategy-documents/strategyupdate2025/.}