FCA Enforcement: The calm before the storm?

25 September 2017

This year we have heard a lot of talk from the FCA’s Enforcement and Market Oversight Division about their new approach to the enforcement of market conduct.

Jamie Symington spoke in June about the ‘evolving approach’ to FCA Investigations (for more see here).  In the FCA Enforcement business plan, Mark Steward outlined that the FCA had historically been too cautious in its approach to opening investigations (for more see here) and that it would be opening many more.  This new approach has significantly increased the number of investigations opened from just over 100 in 2015/16 to over 250 in 2016/17.

As 2017 progresses, the message continues to be the same.  Mr. Steward gave a speech at the AFME European Compliance and Legal Conference 2017 on 20 April 2017, in which he noted that there has been an approximate 75% increase in the number of FCA investigations over the past year.  He noted that there were three main factors for the increase:

  1. more investigations into capital market disclosure issues
  2. the extension in scope of the reporting regime for firms, brought about by the Market Abuse Regime, which has given the FCA a richer and more varied market picture, leading to more cases being selected for investigation, and
  3. the FCA’s change in approach when deciding whether to open an investigation

The figures bear out that there has been a marked increase in the opening of investigations, but as the business plan highlighted, the percentage of cases closed with no further action rose from 24% in 2015/16 to 62% in 2016/17. 

A quick look at the FCA Enforcement fines page for 2017 shows that so far this year there have only been 6 Enforcement fines, whereas by the end of September 2016 there had been 19 and by September 2015 there had been 33 fines.

The trend seems to be, the more investigations that are opened, the less outcomes there are.  Is this because the threshold for opening investigations is so low that ultimately Enforcement cannot make out a case? Mr Steward remarks in his speech:

"the legislation creates some very low thresholds [to opening an investigation] and that is deliberate… giving the FCA wide discretion to act where there are serious concerns but not much hard evidence to really go on….The operative word here is serious i.e. not trivial, technical or officious which implies also a rational and objective basis to investigate, where the circumstances give rise to real harm or risk of real harm caused by suspected misconduct.”

Is it because the Enforcement division cannot cope with the influx of new investigations? Mr. Steward addresses this in his speech:

“I know there are some who think the increase in investigation work will lead to the need for additional resourcing by the FCA. Instinctively, I don’t think this is right and pragmatically, in light of Brexit and other work on our plates, it is not remotely feasible!"

"The challenge then for us is to become vastly more efficient, strategic and focused, especially in conducting investigations more quickly and expediently."

Perhaps the answer is that this is the calm before the storm and once the new approach is in full swing we will see a significant increase in Enforcement outcomes in 2018.

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