The FCA’s Proposal to Publish Enforcement Investigations: A Risk to Market Stability?
The Financial Conduct Authority’s (FCA) recent proposal to routinely publish details of enforcement investigations has sparked widespread debate within the UK’s financial sector. The House of Lords Financial Services Regulation Committee has expressed strong concerns about the potential ramifications of this approach, highlighting the risks to firms, market confidence, and the UK’s position as a leading financial hub.
A Fundamental Shift in FCA Enforcement Policy
Historically, the FCA has only made enforcement investigations public under ‘exceptional circumstances’. However, under the new proposal outlined in CP24/2, the regulator aims to enhance transparency by disclosing more information early. The objective is to deter misconduct and ensure that firms remain accountable.
While transparency is a cornerstone of effective regulation, critics argue that the potential downsides of this shift could outweigh the intended benefits. The Financial Services Regulation Committee’s report, Naming and Shaming: How Not to Regulate, raises serious concerns about the consequences of this policy change.
Key Concerns Raised by the Committee
1. Damage to Reputations
Publishing the names of firms under investigation could have immediate and lasting reputational consequences, even if the firm is ultimately cleared of wrongdoing. Unlike criminal cases, where ‘innocent until proven guilty’ is a fundamental principle, financial firms could find themselves publicly scrutinised based on unproven allegations.
The Committee warns that this could lead to unjust harm, particularly for smaller firms that lack the resources to manage the fallout. Customers and counterparties may distance themselves from firms merely because they are under investigation, regardless of the eventual outcome.
2. Investor Confidence and Market Stability
Publicising investigations could trigger unnecessary panic, particularly in volatile market conditions. Investors may react hastily, pulling funds from firms simply because they are under regulatory scrutiny. This could create disproportionate financial instability and increase the likelihood of firms collapsing due to loss of confidence rather than actual wrongdoing.
The Committee’s report draws attention to international norms, noting that many other jurisdictions adopt a more measured approach, balancing transparency with financial stability. Making enforcement investigations public too soon may make the UK a less attractive destination for financial services firms.
3. Impact on Regulatory Effectiveness
External pressures may hinder the FCA’s ability to conduct thorough, unbiased investigations once they become public knowledge. Firms may become defensive rather than cooperative, prioritising public relations damage control over genuine engagement with regulators.
This could lead to less effective enforcement, as firms may adopt an adversarial stance to protect their market standing, increasing legal battles rather than constructive regulatory resolution.
The Broader Implications for UK Financial Services
The UK has long been regarded as a leader in financial services, but this proposed change risks undermining its global competitiveness. If firms feel that the regulatory environment is too punitive or unpredictable, they may choose to relocate or limit their UK operations. This could reduce competition and innovation in financial services, leading to higher costs and fewer options for consumers.
This uncertainty adds another risk layer for firms navigating the complex regulatory landscape. While compliance with FCA rules is necessary, the fear of disproportionate reputational damage could make firms more risk-averse, potentially stifling growth and innovation in the sector.
What Should Firms Do?
Given the potential risks of increased enforcement transparency, firms must take proactive steps to strengthen their compliance frameworks. Ensuring that internal policies, controls, and governance structures are robust will be key to avoiding regulatory scrutiny in the first place. Furthermore, firms should be prepared to manage regulatory inquiries effectively, ensuring they can provide clear evidence of compliance when needed.
How we Can Help
RegTechPRO is an FCA compliance software platform that helps firms meet their obligations with little fuss. The platform allows FCA-regulated firms to stay on top of regulatory requirements and ensures they can effectively document their compliance efforts.
Not just limited to existing regulated firms, RegTechPRO is particularly beneficial for firms applying for FCA authorisation, as a well-structured compliance framework can signal to the regulator that your firm is serious about compliance, enhancing the chances of a successful application to the FCA.
By leveraging technology to manage compliance workflows, firms can reduce risk exposure and operate more confidently in an increasingly scrutinised regulatory environment.
Find out more: https://www.regtechpro.co.uk
Author: Laurence Rixon
Date: 18 February 2025
