In a speech delivered at the Market Abuse and Market Manipulation Summit on 27 February, Therese Chambers (the joint Executive Director of Enforcement and Market Oversight at the FCA) announced the opening of a new consultation setting out the FCA’s intention to change how it publicises enforcement investigations. The news that the FCA wants to publicly confirm when it has opened an investigation into a firm suspected of serious misconduct is a significant change from the Regulator’s previous policy. Historically, the FCA has kept this information confidential until an outcome on an investigation was reached - if the investigation did not lead to action, the name of the firm was not made public. 

The FCA hopes that publicising the names of firms under investigation may encourage potential witnesses or whistleblowers to come forward with information. Increasing transparency from the outset will also allow the FCA to address concerns or speculation, by correcting information that is already in the public domain; in so doing, it hopes to promote market confidence and provide reassurance that action is being taken. In turn, the FCA aims to speed up enforcement action, create a further deterrent for those who may go on to commit breaches and provide accountable impact. 

What does this mean for regulated firms? 

From the outset, it is obvious that there are a number of challenges. 

The FCA’s intention is that an announcement will contain sufficient information to enable consumers, firms and other relevant market participants to understand the nature of its concerns. More specifically, each announcement may contain the identity of the subject of the investigation, the industry sector and regulatory or legal provisions the investigation relates to, and a summary of the suspected breach, failing or other misconduct being investigated. The FCA is clear in pointing out that the announcements will make clear that the opening of an investigation does not imply that it has reached a conclusion that there has been a breach, failing, or other misconduct (unless it is inappropriate to do so). 

From this, it is clear that the FCA is carefully considering the balance that must be struck between publicising regulatory action, speeding up enforcement matters and ensuring that due process is followed. It will be aware that if it says too much, there is a risk that damage can be caused where no misconduct is later found; but if it says too little, it is arguable whether it has any impact in the first place. There is also the fact that once this information is released, it is in the public domain and therefore may not be treated with the same level of caution that natural justice usually dictates – consider for example, how news of an investigation opened may be handled on social media?

If the proposed changes are made and an investigation is opened and publicised, even if it is later closed without action, there is clearly the potential for considerable reputational damage. This could include, for example, the associated damage to brand value, stock price and investor opinion. 

The FCA is clear that the proposed changes focus on firms only, and not on investigations opened up into individuals (although there are circumstances when it can lawfully make such an announcement in the public interest). However, even where individuals are not named, firms will still need to consider the potential impact a publicised investigation might have on their employees – this includes damaging employee morale in the workplace and the related potential harms to staff wellbeing. There is also a risk to be managed where employees become aware that their employers are under investigation – in these circumstances, they may ask themselves whether they want to remain in place (bearing in mind the impact it may have upon their future employment prospects). 

Although regulated firms do not expect to be investigated by the Regulator, the potential consequences of being publicly identified means firms would be well advised to take adequate steps to prepare for this type of event occurring. This means ensuring: 

• that they have robust compliance policies and procedures in place, and that these are regularly reviewed and updated in line with developing regulations;
• that their employees are properly trained and made aware of the potential consequences of financial misconduct; and
• they are properly prepared to respond quickly and effectively if there is the potential that the regulator may consider opening an investigation. 

By being proactive in this way, firms can help to protect their reputation and avoid the negative attention associated with their business being investigated in the public eye.

If you would like to discuss any questions or concerns you may have about the proposed changes and the impact on your business, and how Deloitte can help you to be prepared, please contact our investigation experts.