No More Naming and Shaming

Fatima Jama provides a synopsis of the Financial Conduct Authority’s decision to step back from proposed changes to its investigation disclosure policy.

Introduction

In a policy turnaround announced last week, the Financial Conduct Authority (FCA) has deserted its proposed shift from an “exceptional circumstances” test to a “public interest” test for announcing investigations into regulated firms. The changes were first proposed last year in the Consultation (see previous article here).

The Initial Proposal

The Consultation had proposed key changes to how the FCA would disclose investigations to the public. Under the current framework, the FCA may only announce ongoing investigations in “exceptional circumstances” where such disclosure would: maintain public confidence in the financial system or market; protect consumers or investors; prevent widespread malpractice; help the investigation by bringing forward witnesses; or maintain smooth market operation.

The proposed reforms would have significantly expanded the FCA’s ability to disclose investigations by introducing a broader “public interest” test. This would have allowed the FCA to name firms under investigation more frequently, potentially including the identity of the investigated party if deemed in the public interest and not legally restricted to do so.

The FCA had argued that increased transparency would enhance public trust and confidence in financial regulation; provide clearer messages to the market; serve as a stronger deterrent against misconduct and strengthen the FCA’s accountability to Parliament and consumers.

Therese Chambers, the Joint Executive Director of Enforcement and Market Oversight, had emphasised the FCA’s desire to “increase transparency around this [enforcement] work, quicken our pace and strengthen our focus.” The FCA noted that formal outcomes of investigations were often published years after the event which diluted the utility of that information for consumers and the industry.

Opposition and Defence

The proposals came under fierce criticism. Financial industry figures highlighted that 65% of FCA cases have resulted in no further action. The FCA risked unfairly naming firms that subsequently would have been found not committed wrongdoing. Firms named during investigations could endure reputational damage regardless of the final outcome. The House of Lords Financial Services Regulation Committee expressed these concerns in their open letter in April 2024 to FCA Chief Executive, Nikhil Rathi. The letter stated that the proposals would have a disproportionate effect on firms later cleared of wrongdoing, market integrity would be compromised through unwarranted influences on share prices and the proposals would unfairly tarnish the reputations of individuals by association. Another dissenting argument raised was that the proposals would risk the overall integrity of the market, including through possible unwarranted impacts on share prices.

In its defence, the FCA noted that between 2021 and 2024, when firms disclosed FCA investigations to the UK market, only one instance resulted in a share price decline exceeding 1% on the announcement day. “[T]he data also shows many more instances where announcing an investigation has not immediately led to a fall in a firm’s market value. For example, on the day we announced our investigation into Countrywide Assured Plc, we also announced related investigations into 4 other firms that were listed or part of a listed group. Three of these saw a rise in share price, and one had a fall of less than 1%.” The exception was Vanquis Banking Group (formerly Provident Financial), which saw a 27.7% drop in its share price on 15 March 2021. However, the FCA attributed this decline to the company’s simultaneous announcement regarding redress payments affecting its consumer credit division’s solvency, rather than the investigation disclosure itself.

The Retreat

In his announcement last  week, Mr Rathi acknowledged the lack of consensus around the proposals: “Given the lack of consensus, we will not take forward our proposal to shift from an exceptional circumstances test to a public interest test for announcing investigations into regulated firms.”

The FCA will instead implement only the most supported elements of its original proposal: “Following extensive engagement, there is support for reactively confirming investigations already in the public domain; public notifications which focus on the potentially unlawful activities of unregulated firms and regulated firms operating outside the regulatory perimeter; and publishing greater detail of issues under investigation on an anonymous basis. We will take forward these proposals and publish our final policy by the end of June.”

Mr Rathi explained: “We have always aimed to build a broad consensus. Considerable concerns remain about our proposal to change the way we publicise investigations into regulated firms, so we will stick to publicising in exceptional circumstances as we do today.”

Consequences and Criticism

Consumer advocates and transparency campaigners have expressed concerns at the FCA’s withdrawal. Writing in The Guardian, financial commentator Nils Pratley noted that “Lobbying victories for the City do not come much more comprehensive” and that “Even an uncontentious, minor consumer-friendly improvement has been lost for the sake of protecting City competitiveness.” The 2017 case of the British Steel pensioners, involving dishonest financial advisers, was highlighted by Mr Pratley as an example where greater transparency might have prevented harm. Critics argue this represents a missed opportunity to strengthen consumer protection and enhance market integrity. The FCA’s compromise solution of publishing thoughts on “issues” under investigation without naming firms has been dismissed by some as “a formula for talking in code.”

The FCA’s shift is welcomed by financial institutions, regulated firms and legal advisers to these institutions who had opposed the proposed changes, that now avoid potential reputational damage from early disclosure of investigations. Industry groups that advocated for City competitiveness concerns have similarly applauded this decision.

However, there are consumer protection advocates who had hoped increased transparency would help prevent harm to the public. Whistleblowers have also been disadvantaged, as they might have been encouraged by more open investigations. The FCA itself continues to lose ground, facing ongoing criticism for the slow pace of its enforcement actions.

Ongoing Concerns

The debate over transparency has highlighted persistent concerns about the FCA’s enforcement timelines. Data shows that FCA investigations that concluded in 2023/2024 and resulted in enforcement action took an average of 41 months to settle, with contested investigations averaging 56 months. In some cases, the delays are even more extreme, for example FCA cases involving criminal investigations from other investigatory bodies.  While the FCA claims to be “speeding up our enforcement work,” critics argue that improved transparency could have applied pressure for faster resolutions.

Broader Context: Other Regulatory Retreats

The FCA’s withdrawal on investigation transparency comes alongside other regulatory pullbacks. Alongside this announcement, the FCA and Prudential Regulation Authority (PRA) revealed they have “no plans to take further” previously proposed rules on diversity and inclusion in regulated firms, citing “the broad range of feedback received, expected legislative developments and to avoid additional burdens on firms at this time.” The FCA also delayed its approach to non-financial misconduct, stating it is “taking some further time to get this right” with next steps expected by the end of June. These multiple retreats suggest a broader regulatory recalibration, with competitiveness concerns increasingly outweighing consumer protection and transparency objectives.

Conclusion

Advocates of the FCA’s rejection of its transparency proposals argue it preserves natural justice principles and supports City competitiveness. Critics of the retreat argue that the financial industry interests are being prioritised over consumer advocacy and view it as a missed opportunity to enhance consumer protection and build public trust in financial regulation. As Mr Pratley notes in his Guardian commentary, “A watered-down compromise version of the transparency proposals should have been possible. Instead, there’s nothing left.” With the final policy expected by the end of June, stakeholders on all sides will be watching closely to see if the FCA can find other ways to address the concerns about investigation duration and effectiveness that originally prompted the transparency proposals.