Name and shame: the FCA approach to enforcement could be changing

What could happen?

The FCA have shared a Consultation Paper in which they have proposed publishing a greater amount of information about their enforcement investigations, including the opening of an investigation, the firm name and progress updates throughout. In line with their strategic priorities, they also want to speed up their investigations by streamlining caseloads.

There has been some negative reaction with certain comment threads getting hot, and whilst there is some argument of possible reputational damage for firms, this isn’t a new method in our judicial system. Just look at legal precedent in this country; court lists and trials are public, so to that end, this is no different. The FCA are clear that any decision to announce an investigation into a firm will be taken on a case-by-case basis, with careful consideration of whether it is in the public interest to do so. If anything, this subjectivity has the potential to be a bigger issue than a consistent process of publishing (or not) the names of firms under enforcement activity.

If these proposed changes come into force, you can expect even more investigations made public and firms being named and shamed, even if enforcement action isn’t taken. To help you we’ve set out some tangible steps you can take now.

What you can do now

1.      Use it as an opportunity to escalate up - make the Board aware of the importance of being proactive in ensuring your firm’s systems and controls are working effectively

Doing so means that if you were subject to a regulatory visit, the chances of you ending up in enforcement are greatly reduced.

2.      Proactively manage supervisory relationships

If your firm is large enough to have a regulatory supervisor, be clever with your engagement. It’s OK to self-identify areas for enhancement in your control framework, the crucial part for the regulator is how you respond – this could help them have greater confidence in you and your firm.

If you’ve identified a control weakness, consider the following:

o   What has the impact been of this control weakness?  For example, do you need to carry out sample testing or a look back exercise to understand the scale of the issue?

o   Who’s in charge of uplifting this control – how is this being tracked? Is there a comprehensive, credible plan in place?

o   How long do you think this will take? – make sure this is sensible. Over promising won’t impress anyone. Do you need to implement an interim fix to plug the risk?

o   Is this being reported on a regular basis to an appropriate forum internally?

o   What does a completed uplift look like? For example, if you’re implementing a new sanctions screening system don’t just think about the end state. You’ll also need a period of embedding and ongoing testing to ensure it’s working as it should and the fuzzy logic parameters are appropriate for the business.  

o   Don’t overshare with the FCA – it’s a fine line but understand from the supervisor what their personal expectations are and respect these. Do they want monthly updates, one update upon completion of the control uplift, or no updates at all? Will it wait until the next periodic engagement, or do you need to speak to them more urgently.

3.      Update key framework documents where applicable

For example, review your business wide risk assessment and in particular consider whether you need to update your impact assessment relating to regulatory scrutiny. If these changes do come into force, the impact of an investigation will likely be greater than ever before (even if no action is taken) given the potential public nature of any reviews.

4.      Make sure your regulatory developments and horizon scanning is robust so lessons learned aren’t missed

The whole point of the FCA putting more information out into the industry, is to enable firms to take prompt action by learning from others’ mistakes. You can see our regulatory gap analysis templates here.

Keep in mind, the FCA put cases into enforcement for two main reasons 1) firms have repeat findings 2) the pace of change is far too slow. Holly has covered this in more detail here – Common Mistakes in Financial Crime Frameworks.

Make sure you’re responding to the consultation, irrespective of whether you think this is a good or bad change – the response deadline is 16 April 2024.

Contacting us

If you’d like to chat this through more, please get in touch at contact@avyse.co.uk .