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On 6 February the House of Lords Financial Services Regulation Committee published its response to the latest iteration of the FCA’s proposals to “name and shame” firms under investigation by the regulator.
At present the FCA publicly announces its investigations at an early stage only “in exceptional circumstances”. In February 2024, it started consulting on a proposal to use what it called a “public interest framework” to allow it to announce more investigations at an early stage. What was already a controversial proposal was made more so by, for example, expressly excluding the impact on the firm itself from the public interest assessment and proposing a less than generous 24-hour notice period for the firm ahead of a public announcement.
The backlash from industry was immediate and profound, with concerns as to the potentially irreparable reputational harm it would cause firms - in circumstances where 67% of FCA investigations conclude with no further action - and the broader impact on the UK’s international competitiveness. This led the FCA, in November 2024, to make a number of amendments which sought to address these concerns. However, a reading of the Committee’s report suggests that this may very much have been a case of too little, too late.
The report’s conclusions, and the excoriating terms in which they are expressed, has put the future of the reforms in real doubt. Its very title - “How not to regulate” – very much sets the tone: it goes beyond mere probing some of the technical detail of implementation and calls into the question the FCA’s approach from the outset.
The Committee considers the fact that the FCA was surprised by the strength of opposition to its initial proposals “suggests a worrying disconnect with industry on the part of senior FCA leadership”. The FCA’s failure to trail the proposals on its regulatory initiatives grid and to engage with industry at a sufficiently early stage has, in the view of the Committee, damaged the sector’s confidence in the regulator. In a particularly damning section, the Committee finds the regulator’s initial stance that the proposals aligned with international standards to be “misplaced and misleading”, noting that the FCA has now, in the face of challenge, simply pivoted to a new position, relying upon the “uniqueness” of the UK. Recognising the risk that the proposals would in fact render the UK an international outlier, the Committee is “unconvinced” by the FCA’s explanation as to how these reforms will further the regulator’s objective to promote international competitiveness and growth.
Regulatory lawyers have broadly welcomed the Committee’s intervention, with many seeing it as another nail in the coffin of a scheme that has caused significant concern to clients across the financial sector. Firms, large and small across the breadth of the financial sector, have united in their opposition. Individuals too are concerned: while the proposals are at present confined to firms, the fact that the senior managers of firms are a matter of public record means that they will suffer collateral reputational damage when investigations are published. For both firms and individuals, the harm is largely done at the point of publication: it is small comfort when the investigation is quietly shelved some months or even years later.
Consistent with the title of the report, the FCA’s handling of this proposal has been a case study in how not to implement what are likely to be controversial reforms. The clear impression given by the report is that the regulator had a clear idea of what it wanted to achieve and developed these proposals in isolation from those it regulates, with no apparent effort to seek views or to build consensus across the industry.
What the FCA hoped to be a straightforward route to quick wins – eye-catching headlines for the regulator with minimal effort – has backfired. The reforms are now mired in what feels an increasingly toxic political controversy. The regulator will not want to back down but it is difficult to see how it can progress, particularly in light of the Government’s commitment to scrapping red tape across the financial sector to unleash UK global competitiveness. The financial sector, and its advisers, are watching with interest. It is not just the future of the reforms at stake but the credibility of the FCA as a regulator.
This article was first published in Solicitors Journal on 18th February 2025.
Further information
Please contact Jill Lorimer in our Financial Services group if you have questions about the topic raised in this blog. Our team of expert lawyers has an impressive track record of successfully defending both individuals and institutions facing regulatory misconduct, disciplinary breach and criminal investigations conducted by the Financial Conduct Authority (FCA).
About the author
Jill Lorimer is a partner in Kingsley Napley’s Financial Services Group and has an extensive track record in advising firms and individuals facing regulatory and criminal investigations by the Financial Conduct Authority (FCA).
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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