Controversial Consultation: Will the FCA proceed with "name and shame" approach?

Will the FCA's proposals to identify firms under investigation go ahead? Or will industry concerns be cause to reconsider? Global Relay's Head of Content, Jennifer Clarke explores the latest developments.

Towards the end of last year, one would have been forgiven for suggesting that the Financial Conduct Authority (FCA) was in hot water. The National Audit Office (NAO) had published a report criticizing the regulator’s lack of staff, insufficient reporting practices, and continued data risks, and -despite Chief Executive Nikhil Rathi’s promise of “far reaching changes” - little regulatory action was seen.

Then came February 2024. After a slow start to the year, the U.K. regulator issued a swathe of strengthened messaging, arrests, and speeches demonstrating a commitment to transparently communicating with the organizations within its purview. The FCA, it appears, is coming out swinging.

Despite this activity, a sticking point remains, namely the FCA’s proposed new enforcement approach . In a nutshell, the FCA is consulting on plans to identify firms and individuals under investigation. This, it hopes, would act as a deterrent to non-compliance, thereby changing behavior across the industry.

The Consultation Paper has swiftly been rebranded as a proposal to “name and shame” companies under investigation, and has been met with heavy criticism. In particular, concerns have been raised about reputation – if a firm is highlighted as being under investigation, will their reputation not be tarnished, even if subsequently found to be in the clear? After all, around 65% of FCA investigations close without action.

In a bid to address these concerns, Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, participated in a webinar hosted by law firm Simmons & Simmons. Within the webinar, the FCA’s plans were met with a general air of concern and skepticism.

Chambers attempted to clarify how they would work, highlighting a public interest test, the importance of assessing investigations on a “case-by-case” basis, and noting that any investigation announcements would be “boring, factual, and balanced” rather than “sensationalist”. Chambers also clarified that individuals would not be “named and shamed” for now, owing to privacy and data risks.

Despite attempts to quell the disquiet, the industry is yet to be persuaded by the FCA’s proposals. According to an article in the Financial Times, some City executives have suggested that, contrary to the FCA’s new “competitive” approach, such plans could drive organizations abroad. There is also criticism that it undermines the fundamental legal principle of ‘innocent until proven guilty’.

The comment period for the Consultation Paper closes on 30 April, 2024. With just over a week to go, Nikhil Rathi has used a speech at the Digital Regulation Cooperation Forum to further address the criticism. Within the speech, which focuses mainly on AI and Big Tech, Rathi notes that other regulatory bodies – including Ofcom and the CMA “routinely publishes the names of firms and issues under enforcement investigation”. He adds that this approach “can bolster transparency and accountability” and that ‘naming and shaming’ is “not how we think about it”.

Perhaps looking to allay concerns that these proposals will be steamrolled into legislation, Rathi adds that the FCA hopes to have a “measured debate” about the Consultation Paper and will “listen carefully to all feedback”. However, the House of Lords Financial Services Regulation Committee has since asked the FCA to put its plans on pause .

Will the FCA push ahead with proposals? Or will criticism kill the Consultation? The industry will be watching closely.

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