CP24/2 Part 2 - The FCA’s revised proposals for publicity over enforcement investigations

(6 min read)

On 28 November 2024, the FCA published part 2 of a consultation on changes to its Enforcement Guide (CP24/2 Part 2), including proposals for greater publicity over its enforcement investigations. While the FCA's proposals have evolved significantly since part 1 was published in February 2024, the FCA is still proposing a regime that would be materially different to the current one (where it only announces investigations in exceptional circumstances). More publicity over future FCA investigations remains likely. Below, we consider how the proposals have changed and what they would mean for future regulatory enforcement, were they to be taken forward.

Under its amended proposals, the FCA would still be able to publicise its investigations into firms, including naming them, more often and at an earlier stage than it currently does, where it considers this to be in the public interest. The revised proposals would include a reinforced list of public interest factors, a staged FCA consideration of the test, and some additional safeguards for firms.

While these should help to mitigate some of the risks for firms, an assessment by the FCA that it is in the public interest to disclose the fact of an investigation will not prevent the public and media from inferring or speculating about the firm's culpability before any material investigation work has been conducted, or any regulatory breach established. The FCA's revised proposals would give firms faced with this risk some additional arguments as to why the FCA should not announce the investigation, but they would not eliminate the risk of firms being judged in the court of public opinion before any evidence has been gathered or any arguments put forward. A further key concern about the new regime would be the uncertainty it would bring for firms over: (i) whether or not their investigation would be announced at all; (ii) if so, when it would be announced; and (iii) what would be said.

In our view, these revised proposals would create greater (compared to the current position) uncertainty for firms under investigation. Much would depend on the FCA's assessment of the public interest, a firm’s ability to persuade it to keep a matter confidential, and the political environment in which the investigation was taking place.

Proposals that have evolved but still pose risks for firms

How would the FCA’s revised proposals change the current position?

Part 1 of CP24/2 contained detailed amendments to the FCA’s current enforcement guide (EG), whereas the second focusses on some of the issues at principle level. If the FCA’s Board proceeds with the proposals at all, a further review of the proposed amendments to EG (in near-final form) would be important. The FCA's revised proposals, as currently understood, are as follows.

1) Changes to the proposed public interest test

The FCA would still be able to:

announce that it has opened an enforcement investigation;
provide further updates during the investigation; and
make a further announcement when it has closed an investigation.

The FCA’s first consultation contained a non-exhaustive list of public interest factors that the FCA indicated it would take into account when making a decision as to whether or not to publicise an investigation, including:

protecting the interests of potentially affected customers, consumers or investors;
whether an announcement might encourage potential witnesses or whistle-blowers to come forward;
addressing concern or speculation (including correcting information already in the public domain);
providing reassurance that the FCA is taking appropriate action;
otherwise advancing its statutory objectives.

Under the approach set out in the second consultation, the list of public interest factors would be revised to add two more (to be considered alongside those set out above):

the impact announcement of an investigation would have on the relevant firm (as the subject of the investigation). The FCA deliberately omitted this from the initial proposals (see para 3.8 of CP 24/2 Part 1) on the basis that it should be "primarily focused on promoting our statutory objectives". The FCA now argues it will “be central to [its] consideration of whether to announce an investigation and name a firm”; and
consideration of the potential for an announcement to “seriously disrupt public confidence in the financial system or the market”.

It also appears that the “otherwise advancing its statutory objectives” factor would be removed from the proposed list.

These revisions represent a significant change. It is surely right that the potential impact on a firm or for market disruption are taken into account by the FCA when considering whether or not to announce an investigation. These revisions therefore should give at least some firms the ability to argue that it is not in the public interest for the FCA to announce their specific investigation. However, all FCA investigation announcements are likely to have some impact on the firm under investigation (and not just on its share price). It remains to be seen how the test would be calibrated and what level of potential impact on the firm would be needed before FCA could be persuaded an announcement was not in the public interest. It appears that the impact on the market or financial system would need to be serious before that factor could become a reason for not making an announcement. Further, the FCA may find, when deciding what is in the public interest, that other factors listed above would outweigh the potential impact of an announcement on the firm.

2) A staged consideration of the public interest

CP 24/2 Part 2 indicates that the operation of the public interest test would take place in stages, with consideration given to:

whether any announcement of the investigation would be in the public interest at all;
when the FCA might make an announcement. Here, the FCA indicates that (at least in some cases) the announcement of an investigation would not take place immediately after the investigation is opened. It notes that its internal 3 month case review stage “would likely be the earliest point at which we would consider the question of announcement. In this way, we should also limit the number of announcements we make of investigations that end in no further action”. The second consultation draws a distinction between (for example) a case where there has already been “an extensive period of supervisory engagement” leading to the Authority already having “a good understanding of the issues”, such that an announcement would be in the public interest early in the investigation, and a different case where it “would need to undertake more initial investigative work to learn more about the facts". In the latter case, the FCA comments "it seems unlikely that it would be in the public interest to announce until our investigation is more advanced”;
what might be announced. Here, the FCA indicates that it would “carefully consider the content of any announcement and whether naming the firm was in the public interest". The FCA's revised proposals recognise that there may be instances where naming the firm may not be in the public interest, or where harms could be avoided or 'educational benefit' achieved by some other form of publication. The FCA indicates in the second consultation a series of potential factors both in favour of and against naming the firm, that recognise (for example) the potential for an announcement to have severe impact on third parties (including individuals such as a firm's directors or employees).

These aspects arguably represent the most significant evolution between the first and second consultations. Taken together, they appear to contemplate that there will be:

some cases in which the FCA will not announce a firm investigation until some way into the process. This could potentially assist in mitigating the injustice of an investigation being announced in a meritless case that was started but discontinued at a very early stage. However, the FCA could still decide it is in the public interest to announce an investigation that it later decides to discontinue; and
other cases where the FCA may decide to name the issues, but not the firm, deterring others in the market without necessarily ‘naming and shaming’ a specific firm at the investigation stage.

As the FCA recognises in the second consultation, further work would need to be done to understand how its public interest assessment would work in practice. In the meantime, two key criticisms might be made of this aspect of the proposals. First, they would create more uncertainty for firms as to whether, when and what the FCA would announce (matters rarely in issue under the current ‘exceptional circumstances’ regime). By its nature, this test would afford the FCA a wide discretion, and would be likely to produce different outcomes in different cases, leading to the appearance (if not the existence) of different treatment between firms in similar positions. Secondly, there is at least a risk that the issue of publicity over the investigation would become an additional dynamic in any negotiations during the investigation process, in a way that is not currently the case.

The FCA provides commentary about how it considers the proposed new regime would have applied to some of its recent investigations. While of interest, this is a hypothetical exercise and does not take into account how the firm, the media, Parliament and/or other stakeholders would have responded, or what additional commentary the FCA might later have had to provide in public following an initial announcement.

3) Notice, representations, and existing investigations

The FCA is also proposing two further key changes to its earlier proposals:

giving firms a copy of any draft announcement and 10 business days’ notice to make representations to it, with a further 2 business days’ notice of publication of any announcement (if it nevertheless decides to proceed). This would represent a material improvement on one of the most controversial aspects of the original proposals (to give only a day’s notice with effectively no ability to make representations); and
not making proactive announcements of investigations that are already ongoing at the time any proposals come into effect. The FCA warns, however, that it may reactively confirm ongoing investigations which are already in the public domain, where this is in the public interest. It appears, therefore, that the ‘exceptional circumstances’ (current) test would continue to apply to the FCA's existing investigations portfolio.

These additional safeguards are likely to be welcomed by firms.

International comparisons

How should firms respond?

These remain proposals at this point, subject to public consultation, Parliamentary scrutiny and further industry engagement. While it remains to be seen whether and how the FCA will take these proposals forward, the FCA's direction of travel seems clear.

Next steps

The FCA's second consultation period remains open until 17 February 2025, with further stakeholder engagement planned. The FCA indicates its Board will make a decision as to how to proceed in the first quarter of 2025. Firms are encouraged to provide further feedback while they have the opportunity. If you would like support doing this, please get in touch.