Dealing with Investigations and Enquiries from Regulators

Most regulators adopt a risk-based approach to regulation. This means that they will generally focus their efforts on those activities that are perceived to be the greatest risk.

All regulators receive information about suspected misconduct or contraventions of the law from a range of sources. The first step the regulator will take in relation to any suspected misconduct or contravention, is to assess the information and form a view about whether it warrants further inquiry or investigation. If the regulator doesn’t have enough information in their possession, they may request information and documents from other sources. 

It is essential that regulated firms have a good working relationship with the regulators who oversee their operations. If the regulator has a positive view about your firm's willingness to work with them, it is more likely to approach you for an explanation of any matters of concern to them, which may give you opportunity to resolve the concerns before they become the subject of a formal investigation.  

Regulators have a number of options available to them when it comes to seeking information from firms. These generally include:

? Informal requests for information and documents;

? Compulsory Notices to produce documents or information;

? Informal/voluntary interviews; and

? Compulsory interviews.

In this first part, we will look at what to consider if you receive a request for voluntary production of information or documents.

Informal requests for information and documents 

There are several reasons why a regulator may make a voluntary request for information or documents including: 

? Expediency; 

? An apparent willingness to assist on the part of the document owner;

? Where there is not yet sufficient information to commence a formal investigation. 

Responding to an informal request for information or documents requires careful consideration. On the one hand, it is important to comply with the principle of maintaining an open and cooperative relationship with the regulator and assist where possible. On the other hand, it is critical that you do not inadvertently cause yourself or your firm more difficulties. 

Requests for information are inevitably a drain on the resources of a firm; a drain that can be inconvenient and costly. Responding blindly to a request for voluntary information can potentially be more expensive than handling a Compulsory Notice.

However, while it may be tempting to simply refuse any request for voluntary production of information or documents, there are some circumstances where voluntarily producing information and documents will benefit the firm – for example if providing the material will resolve the issues without it becoming a formal investigation. 

It is also important to understand that if information or documents are produced voluntarily, they are unlikely to have any of the protections that are present when information is provided under compulsion. You should consider the following:

? Do any of the relevant documents have client legal privilege?

? Is there risk of loss of confidentiality of the information?

? Is there any potential breach of an obligation of confidence owed to a third party?

If you are unsure, you should consider getting expert advice.

When deciding what to do with an informal request, the first step is to understand what the regulator is looking for and why. Because the regulator is unlikely to know your business as well as you do, they may ask for significant quantities of documents and information. Therefore, if the request appears vague, ambiguous or unreasonably burdensome, you should attempt to clarify with the regulator. Such discussions should be on a without prejudice basis and you should not make a commitment to produce information or documents before you have had time to consider what would be captured by the request.

It is also worth asking the regulator what brought about the request and whether you/your firm is the subject of the concern or you are merely someone that the regulator thinks might have relevant information or documents. 

Next, you should identify and understand what information and documents would be relevant to the request. This can often be time and resource intensive as relevant information can exist in emails, data files, notebooks, diaries, client files and back up data. Again, depending on the size and nature of the request, you may want to consider engaging experts to assist.

Once you understand what information and documents would be relevant to the request, you can evaluate whether to provide some, all or none of the information and documents voluntarily. 

If you do decide to provide information or documents voluntarily, it is critical to ensure that you don’t provide misleading information, either deliberately or inadvertently (e.g. by omitting some information). Limitations, if any, regarding the quality of the information should be included in any response to the regulator to avoid subsequent criticism. Providing misleading information can create far greater problems!

CONCLUSION

Receiving the attention of a regulator can be daunting and if not handled correctly, could have serious repercussions. This guide aims to help you think through the issues that may arise if you receive a request for voluntary production of information or documents. However, it is only a guide. If you have concerns about your firm’s ability to deal with such regulatory requests, you should consider seeking advice from advisors experienced in these matters.