On 27 February 2024, the FCA issued a consultation paper: CP24/2 - Our enforcement guide and publicising enforcement investigations – a new approach. Currently, the FCA only makes announcements about its enforcement investigations at the end of the process - where a determination of regulatory misconduct has been made, and subject to certain statutory requirements - or in exceptional circumstances (such as information already having been made public). The FCA's new proposal is to begin announcing investigations as they start, or whilst they are ongoing, where it is 'in the public interest' to do so. The consultation also proposes making amendments to streamline the enforcement process.
In the past weeks, a number of government oversight committees, industry bodies, and market participants, have expressed significant concerns over the proposals. These concerns rightly focus on the FCA's failure to conduct a proper cost-benefit analysis of the proposal, not least taking into account the likely harm on the firms and/or market stability.
Osborne Clarke has responded independently to the consultation to provide a more detailed explanation of why the proposals should be withdrawn and/or significantly revised following further consultation. A copy of its Response can be found here: Osborne Clarke LLP - Response to Consultation Paper CP24_2.
In summary, we do not consider the proposals to be necessary or proportionate to achieve the stated objectives, nor that there is a cogent, data-driven, evidence base as to how the proposals would achieve the hoped-for benefits.
The negative consequences could be substantial, and it is concerning that no cost-benefit analysis or other process to take those into account has been conducted. We consider that the FCA should not pursue these proposals; it already has sufficient alternative options to achieve the objectives of CP24/2 without the increased risk of harm to firms and market stability.
However, if the FCA is determined to adopt some form of implementation, it should undertake a proper cost-benefit assessment, taking into account a number of factors which have not been considered in CP24/2. In particular, the impact on the subjects of any announcement and the statutory protections afforded to subjects in relation to other public announcements. It may also consider, and consult on, other more proportionate proposals. We strongly oppose the publication of the name of the subject, or any information which could lead to that entity (or any persons within that entity) being identifiable. The FCA should, at the least, consider and consult on how its objectives could be achieved safely on an anonymised basis.
The FCA should reconsult on its proposals as regards the streamlining of the Enforcement Guide. The FCA's current explanations for the proposed changes are not sufficient (and provide no explanation at all for the removal of some key procedural safeguards). The risk of unfairness to those being investigated outweighs any potential benefits of efficiency to the FCA.
Osborne Clarke is responding independently because the scope of our contentious financial regulation experience in our team covers not only the traditional financial services clients, but also challenger banks, fintechs, and disrupter firms, particularly in the payments space, who stand to be disproportionately affected by the implementation of the proposals set out in CP24/2. We have therefore responded independently to share our 'on the ground' knowledge and experience, and to provide a deeper insight into the real risk of unintended consequences.
Our team of contentious financial regulation lawyers has extensive experience in getting the right result for clients in complex, high-value financial services regulatory investigations.
Made up of specialists in contentious regulation, litigation, arbitration and investigations, our team has significant bench strength. We act for a range of clients, from traditional financial services companies to alternative lenders and fast-growth fintechs, advising on all aspects of the regulatory environment in which they operate.
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