Financial services sector leaders including the Investment Association, UK Finance and PIMFA have written to Chancellor of the Exchequer Jeremy Hunt in protest of the FCA’s proposal to publicise enforcement investigations before a ruling is made on the firm.
The FCA launched a consultation of the enforcement guide on 27 February, with feedback accepted until 30 April. The feedback deadline was extended from 16 April. In its announcement, the FCA proposed a change in how it publicises investigation information as well as changes to the Enforcement Guide to “reduce duplication and make information about our processes more accessible”.
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“There can inevitably be some time between when we identify misconduct and harm and announce the action we are taking to tackle it,” the FCA stated in the announcement.
“We currently publish very little information about the investigations we have opened before taking action or which do not lead to action. This can lead to public concern about whether we are taking appropriate action and reduce the educational and deterrent effect of our enforcement.”
Financial services leaders, however, have responded to the consultation with concern due to how the release of information may influence the public’s opinion without any conclusion of if there was wrongdoing in the first place.
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In a letter released on 26 April and signed by 16 organisations, they wrote: “As the majority of cases end with no action being taken, this means that a majority of firms and/or individuals are found not to have committed any wrongdoing. However, the naming of firms as being under investigation will undoubtedly influence customers and clients who, for example, might choose to withdraw their money or close their investment account.
“As an industry, we feel that any true public interest test needs to take account of the impact on firms as well. Not doing this runs the risk of underestimating the wider and unintended consequences of a proposal on financial markets, which ultimately has a knock-on effect on consumers.”
The letter pointed out that the system proposed by the FCA could act as a deterrent for those looking to invest in the UK as other countries do not have the same system in place, making the UK an ‘international outlier’. While other UK regulators do announce when investigations will be taking place, the letter stated that “the intense international competition that the financial services sector faces and the fact that it is already heavily regulated needs to be taken into account.”
Other organisations that signed the letter include The London Market Group, The Investing and Saving Alliance, The City UK, Innovate Finance, and the City of London Corporation.
Liz Field, chief executive of PIMFA, added: “For smaller firms, the impact could be devastating, with clients leaving in droves despite there being no immediate evidence of actual wrongdoing on the part of the firm. Larger listed firms will almost certainly be subject to significant market volatility because of shareholder action or could see significant outflows of assets – potentially leaving them hollowed out.
“We cannot understand how these proposals support the FCA’s role of promoting UK competitiveness and economic growth, while ensuring consumer confidence through the way in which it supervises and regulates the industry. The proposals appear to contradict the former and do little to promote the latter.”
This story was written by our sister title Portfolio Adviser
