What is the FCA proposed ‘name and shame’ policy?

Where the FCA starts an investigation into a firm, it does not at the moment usually publish the name of the firm being investigated or what is being investigated.

In its Consultation Paper, CP 24/2 (the ‘CP’) published in February 2024, the FCA proposed publishing much more information about its investigations including the name of the firm being investigated. Although this has been described as a ‘name and shame’ policy by critics, the FCA does not accept this description.

This has caused great controversy in the industry. It is reported also that the Chancellor of the Exchequer has urged the FCA to re-think its proposals.

The FCA proposals

The first step in an FCA enforcement proceeding is usually to start a formal investigation, which is a fact-finding exercise.

At the moment, the FCA does not normally publish the name of the firm being investigated or other background details of the investigation. It can do so where it considers that it is in the public interest – and its public interest criteria (set out in its Enforcement Guide) include cases where publication might encourage whistleblowers or witnesses to come forward. Even in these cases, however, it considers the interests of the firm being investigated before publishing.

In the CP, the FCA proposed to change this radically. It suggests that it will publish details of its investigations more often and this will include the name of the person under investigation. In deciding whether to publish, it will still apply a public interest test, but this will be wider than the present test.

The justification for the new test includes providing reassurance that the FCA is taking appropriate action (which the FCA describes as letting the public know that the FCA is ‘on the case’). Very importantly, the new test will not include any consideration of the interests of (or impact on) the firm being investigated. While the CP suggests that each case will be considered on a case-by-case basis, the impression is that publication will be the default option.

It is not, however, suggested that details of investigation of individuals will be published on the basis of data protection concerns.

Slightly alarmingly, the FCA also suggests that details of existing investigations, i.e. those underway when the policy comes into force, will also be disclosed.

What are the criticisms of the proposals?

Inevitably, the proposals have been highly controversial. Some of the issues include:

• FCA investigations involve a lengthy and often costly process. The burden of dealing with an investigation may be enough to cause a small firm to fail. Publishing the details of the investigation is bound to affect the business and reputation of such a firm, sufficient in some cases to make it go out of business, even if it has done nothing wrong.
• Starting a regulatory investigation may not lead to enforcement proceedings or any sanction against the firm – but it may still have suffered damage to its business and reputation by publication of the details of the investigation.
• Even if the investigation does lead to a disciplinary action and a sanction against a firm, this may not be upheld on appeal. In several cases recently, the Upper Tribunal has been highly critical of the FCA in its conduct of investigations and regulatory proceedings and has refused to uphold sanctions imposed by the FCA. A firm may still have been adversely affected by publication of details of the investigation into it.
• The new public interest criteria for publication which the FCA suggests include deterrence of other firms and education as to the FCA’s concerns. Both of these can be achieved without publishing names of firms under investigation or the specific factual background of an investigation. The same objectives could be achieved if the FCA indicates areas of concern and states that investigations have been commenced against (unnamed) firms.
• If the FCA reasonably concludes that it is necessary to stop a firm carrying on a particular activity, it has wide supervisory powers (including restricting a firm’s permission to do certain types of business) which may have immediate effect.
• While the FCA does not propose to publish details of investigations of individuals, individuals will unavoidably be identified in some cases. Many financial services firms are small, and it will be readily apparent from even limited factual details published that a particular individual is concerned.
• The FCA appears confident that disclosure can be done in a way that does not breach its obligations under the Financial Services and Markets Act 2000 (‘FSMA’), including section 348 of FSMA which restricts disclosure of information apart from in certain cases where disclosure facilitates the performance of a particular function. It would be useful if the FCA shared its thinking on this. If the only justification for publication is to reassure the public that the FCA is ‘on the case’, it must be doubtful whether this requirement will always be fulfilled.

 The consultation closed on 30 April 2024.

The FCA has not given a date on which it will report on feedback – though there will have been significant adverse comment. As mentioned above, the Government has expressed its displeasure at the proposals.

Despite Government disapproval, the FCA can go ahead and implement the proposals anyway. It remains to be seen whether – in the face of such opposition – it will do so.

If you have questions or concerns about the proposed changes, please contact Tony Watts.