The Financial Conduct Authority (FCA) has cited heightened interest from Members of Parliament in specific cases as one of the main reasons for proposing disclosure of ongoing investigations. The regulator mentioned that it receives approximately 650 letters of inquiry yearly. FCA's CEO, Nikhil Rathi, and Board Chair Ashley Alder appeared before the House of Commons Treasury Select Committee today (Wednesday) to defend the proposed policy.

A Blow to London's Financial Hub?

The regulator was responding to concerns regarding the potential adverse impacts on both firms and individuals named in investigations, especially those later cleared. Among other reasons, the FCA highlighted the impact on whistleblower confidence as a reason to publish ongoing probes.

The FCA disclosed that as of March 31, 2024, there were 500 ongoing investigations involving 336 individuals and 164 firms. While the exact number of investigations launched annually remains unspecified, the authority highlighted insights into the outcomes of closed investigations.

Acknowledging concerns over the duration and volume of investigations, the FCA outlined plans to streamline its investigative portfolio. This involves enhancing coordination between its authorization, supervision, and enforcement teams to expedite processes aligning with strategic priorities.

In response to queries about appeal mechanisms and thematic disclosure, the FCA maintained its stance, opting against an appeal mechanism and expressing reservations about the efficacy of thematic disclosure.

Besides that, the FCA downplayed the potential impact of the policy on firms, citing their familiarity with enforcement actions and disclosure requirements. It emphasized the limited number of investigations relative to regulated firms, mitigating significant market repercussions. Regarding a query as to whether the FCA had compared the practice to that of counterparts globally, the agency underscored the challenge of differing cultural norms and regulatory approaches across jurisdictions.

Reputation and Market Ramifications

While the FCA contends that its disclosure proposals align with public interest tests and do not undermine the principle of "innocent until proven guilty," the debate underscores the delicate balance between transparency, accountability, and the potential impact on firms and individuals involved.

In February, the FCA announced that it was planning to disclose more information about its ongoing investigations into companies much earlier than before to enhance market transparency. This move, reminiscent of practices by its counterpart, the US Securities and Exchange Commission (SEC), marked a pivotal shift in the UK's regulatory landscape.

Under the forthcoming strategy, the FCA intends to adopt a proactive stance by publicly naming companies under formal investigation as soon as probes commence. This approach aims to encourage witnesses and whistleblowers to step forward and deter misconduct within the financial industry.

However, while transparency is crucial, many stakeholders contend that the proposed approach is excessive. Instead, they advocate for improving investigative processes and reducing decision-making timelines. With 65% of FCA investigations ending without action, there are concerns about the needless reputational harm caused by public disclosures.

Calls for a more nuanced approach have emerged, suggesting that the FCA should only name companies in exceptional circumstances. In March, Kemi Badenoch, the Business Secretary and Equalities Minister, accused the FCA of "regulatory over-reach" in an official letter. In 2023, the FCA issued a record 2,286 scam alerts on its public Warning List, an improvement of 21% from the 1,882 alerts issued in 2022.