Out-Law News 2 min. read
14 Jul 2015, 3:31 pm
The Financial Conduct Authority (FCA) said that its decision to open an investigation would be based on whether this was the most "efficient and effective" way of meeting its statutory objectives. Less formal action may be appropriate in other cases, providing that wrongdoers face "meaningful and proportionate sanctions", according to new guidance published by the regulator.
"Enforcement is not the only tool at our disposal where we see misconduct by firms or individuals, nor is it the most appropriate one to use in every case," said Georgina Philippou, the FCA's acting director of enforcement and market oversight. "[This] publication will make our decision-making process more transparent."
The regulator committed to updating its enforcement criteria and setting out its processes more clearly at the end of last year, following a government review.
The new guidance will be used in cases where the FCA suspects a regulatory breach may have occurred, and where it considers that the potential outcome of an investigation could be a fine, ban, suspension, prohibition order or public censure. The decision to open an investigation should not be seen as the FCA deciding that a breach had been committed, or that the regulator had decided on what type of enforcement action to take, according to the guidance.
A decision to investigate will be based on whether an investigation was likely to further the FCA's aims and statutory objectives; on the proportionality of an investigation and the strength of the evidence; and the "purpose or goal" of any resulting enforcement action. This could be specific or general deterrence, the "justice" of holding those responsible for very serious regulatory breaches to account or the need to remove certain wrongdoers from the industry in order to protect consumers.
Matters that the FCA may take into account when considering these criteria include the firm or individual's "reaction" to the breach, any knowledge or suspicions that the issues in the case may be widespread in the market and whether the nature of the suspected misconduct points to "poor culture and governance" in the firm. If a number of firms could be subject to an enforcement investigation for similar failings, the regulator will consider which cases are the most serious and have the widest potential impact.
In cases where a formal investigation is not the most appropriate course of action, the FCA may instead agree necessary action with the firm in question and place it under stricter supervision. It could also appoint a skilled person to conduct an independent review of the firm, at the firm's own cost. Other options available to the regulator include placing restrictions on certain activities or promotions, and ordering firms to pay redress to consumers where they have caused loss or harm.
The revised criteria will not apply to cases involving civil litigation or potential criminal prosecutions, or to actions based on the FCA's new powers under the 1998 Competition Act, the regulator said. It intends to publish separate guidance on the use of its competition powers shortly, along with a consultation on further matters stemming from the government review.
"The new referral criteria will not come as a surprise to many as it sets out the approach the FCA, and its predecessor the FSA before it, has applied for some time," said financial enforcement expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com.
"While the new criteria are unlikely to alter the number or nature of referrals to enforcement it does identify the relevant areas firms and individuals should take into account in discussions with FCA supervisors in circumstances where a referral to enforcement is likely to be considered," he said.