'Do the right thing' – a new approach to FCA enforcement?

In her inaugural speech as FCA Joint Executive Director of Enforcement and Market Oversight, Therese Chambers gave a seemingly straightforward headline message to the financial services industry – 'Do the right thing'.

That's certainly not a new message from the FCA and sounds uncontroversial.

The challenges arise because, while, in some circumstances, 'the right thing' (and, even more so, 'the wrong thing') is obvious, very often it is not.  That may be due to ambiguous regulation or differing interpretations of the appropriate application of regulations.  The simplicity of the message makes it an attractive mantra for the FCA but – at least potentially – a challenging one for the industry to the extent that it conveys to consumers and to firms that doing the right thing is simple or easy. In most cases we are not dealing with deliberate wrongdoing or intentional failure to comply, rather it is a much more finely balanced assessment of whether a firm, and its Senior Managers, have acted reasonably in the circumstances.

Doing the right thing is a thread running through the FCA – it is clearly at the heart of the FCA's Consumer Duty.  Recently, speaking about the Consumer Duty, Sheldon Mills, FCA Executive Director of Consumers and Competition, said that 'Those firms who do the right thing and show leadership should welcome action to tackle poor practice by competitors who drive down standards'.

The message carries through from standard setting to supervision and enforcement.  And in one of her responses to the questions following her speech, Therese Chambers noted the increased specificality in the standards expected of firms, as well as those standards being significantly increased.  In particular, she highlighted the cross-cutting rule to 'avoid causing foreseeable harm to customers' which she could see being used in an enforcement context where firms had decided to put their own profits first.

Therese Chambers' speech focuses on 'doing the right thing' when something has gone wrong and a firm is putting it right.  In the particular example she calls out for praise, it is clear that a large part, at least, of that praise seems to be for doing more than 'the right thing'.  She describes the FCA's recent Final Notice issued to Lighthouse Advisory Services in relation to a censure for unsuitable advice in respect of the British Steel Pension Scheme as 'a case where a firm not only took responsibility, but it took responsibility for a harm it did not cause. And then, it offered redress and co-operation beyond what was expected of it'. Specifically, 'The amount of redress paid by Quilter [the new owner of Lighthouse] was far more than the fees Lighthouse received for the unsuitable advice'. Indeed, in another of the cases mentioned in the speech, an enforcement case in relation to the Woodford Equity Income Fund, she references the fact that the parent company of the regulated entity has agreed to make a voluntary contribution to bolster the funds available for redress by up to £60m.

Worryingly for firms, this makes it sound like just doing the right thing might not actually be enough to get credit for cooperation in the enforcement context.

When Joint Executive Director, Steve Smart, takes up his role in a couple of weeks' time, we will enter a new era of FCA Enforcement and Market Oversight.  We are promised more information on the new Directors' 'vision' in due course and we particularly look forward to hearing more about the data-led approach and how that might apply outside of markets investigations.

Those of us with experience in this area, whether as clients subject to investigation or practitioners advising on enforcement cases, will have views on what we'd like to see from the new leadership.

Top of our list is greater transparency and consistency.  For instance, perhaps we could have more regular information on the numbers of investigations open and their subject matter, rather than relying on Freedom of Information Act requests.  And for greater consistency when it comes to the process of an investigation (and transparency around the standard process).

We invite you to share your thoughts – if you'd like to contribute, get in touch at FSRandCCInotes@hsf.com or through your usual HSF FSR contact and we'll put together a 'wish list'.