CP24/2 Part 2: Have the FCA done enough?

 

Introduction

On 28 November 2024, the UK Financial Conduct Authority (the "FCA") published Consultation Paper 24/2 Part 2 ("CP24/2 Part 2").¹ This sets out revisions to the FCA's controversial proposals² published earlier this year to name firms it is investigating at an early stage and before any findings of misconduct have been made (the "Transparency Proposal"). The deadline for responding to the revised proposals is 17 February 2025.

Together with the various statements and speeches from the FCA's Enforcement and Market Oversight team,³ CP24/2 Part 2 provides helpful insights into the FCA's new enforcement strategy and approach. The FCA's focus on streamlining its investigation portfolio (through triage and prioritisation), and improving the pace of its investigations, will be welcomed by the industry. However, it is not at all clear that the Transparency Proposal is needed to achieve those objectives and it seems to have served as something of a distraction from those potentially more positive points.

It is clear that the FCA has taken notice of the strong response across the industry and in Parliament to its original proposal. However, key issues remain and there are significant concerns that still need to be addressed, including that the FCA appears to be downplaying the scale of the changes. We set out our views below.

Approach to transparency

The proposed public interest framework (the "PIF")

The FCA has provided more detail on the PIF in CP24/2 Part 2. It has also taken the opportunity to expand on certain factors and added some new factors that were not in CP24/2.

The table below tracks through the changes from the existing "exceptional circumstances" test, through to CP24/2 and CP24/2 Part 2:

EG 6.1	CP24/2 (paras 3.5 & 3.6)	CP24/2 Part 2 (para 4.10)
Factors weighing in favour of making an announcement
matters under investigation have become the subject of public concern, speculation or rumour	address public concern or speculation, including by correcting information already in the public domain	Information about the matters under investigation is already in the public domain, including through: public FCA regulatory action a market announcement or other publication disclosures made by the subject, other firms or organisations or any regulatory body publicity around an investigation by another regulatory body or law enforcement agency media reporting or any other publicity
protect consumers or investors	enable the interests of potentially affected customers, or consumers or investors more generally, to be protected	Publishing is likely to be in the interests of potentially affected customers, consumers or investors and/or customers, consumers or investors more generally.
		Publishing is likely to prevent direct or indirect consumer harm, for example in cases of suspected fraud.
		Publication is likely to be in the interests of creditors. For example, if the firm under investigation is insolvent or in administration.
NA	provide reassurance that we are taking appropriate action	There has been public concern about the matters under investigation, and public trust and confidence is likely to be maintained by providing reassurance we are taking appropriate action.
prevent widespread malpractice	deter future breaches of our rules or other requirements or prohibitions that we are responsible for enforcing	Publishing would provide an educational benefit for firms and market users to understand the types of conduct we are investigating and could drive better compliance with our rules or other requirements. This may be particularly relevant where we are looking to raise awareness and drive compliance in new areas of regulation, areas where we have identified greater levels of risk, or where the issues under investigation align with wider national policy concerns (for example in relation to economic crime). We would also consider whether the issues under investigation are areas where the FCA has already been clear with the industry about concerns.
help the investigation itself, for example by bringing forward witnesses	help our investigation, for example by encouraging potential witnesses or whistleblowers to come forward	Publishing is likely to have an operational benefit by encouraging potential witnesses or whistleblowers to come forward.
NA	NA	Publishing would help improve our accountability to parliamentary committees by enabling us to share more information in response to significant queries about our involvement in particular issues.
maintain public confidence in the financial system or the market	otherwise advance one or more of our statutory objectives, including protecting and enhancing the integrity of the UK financial system	NA
maintain the smooth operation of the market	NA	NA
Factors weighing against making an announcement
NA	the conduct of our investigation or an investigation by another regulatory body or law enforcement agency	Publishing could hamper an FCA investigation or an investigation by another regulatory body or law enforcement agency. For example, if confidential sources risk being compromised or evidence of wrongdoing is put at greater risk of being destroyed.
NA	the interests of consumers	Publishing is likely to have an adverse impact on the interests of customers, consumers or investors.
NA	the stability of the UK financial system or our ability to otherwise carry out our statutory functions	Publishing could cause serious market or sector impact, financial instability, wider systemic disruption or impact, or seriously disrupt public confidence in the financial system or the market.
the FCA will consider the potential prejudice that it believes may be caused to any persons who are, or who are likely to be, a subject of the investigation	NA	Publishing would be likely to have a severe impact on the firm or on third parties, in particular, the firm’s current or former directors and/or employees. Firm size may be particularly relevant, with the impact on smaller firms potentially greater. The age and/or stage of development of a firm may also be relevant, recognising that impact might be greater on a more newly established firm.

The FCA's inclusion of the potential damage to firms as an express factor for consideration under the PIF is a positive step, but its potential impact should not be overstated:

• The FCA had already accepted that it would need to consider this factor as part of the overall circumstances in each case;
• CP24/2 Part 2 provides little by way of details of how this factor might be considered in practice by the FCA; and, perhaps most importantly,
• The fact that the current test (set out in EG 6.1) expressly refers to "potential prejudice" to investigation subjects, and the PIF now increases the threshold to "severe impact" reflects a substantial raising of the bar in relation to the sort of impact or prejudice a firm would need to reference in seeking to avoid the investigation being published.

There is also a clear tension between the FCA's inclusion of this factor, and its attempts to downplay the potential market impact of regulatory announcements.⁴ In reviewing the FCA's analysis on market impact, one can still fairly conclude that FCA announcements can potentially impact a firm's market value and that such impact is often unpredictable (neither outcome is desirable).

Even as amended, there are several notable concerns with the PIF:

• Information in the public domain: The FCA has sought to materially expand the scope of the factor regarding where information about the matters under investigation is already in the public domain. In EG 6.1, and in the FCA's original proposal, the fact that such information is in the public domain only weighed in favour of an announcement where there is "public concern or speculation" and a need to address it. In CP24/2 Part 2, the fact that such information is already in the public domain is itself sufficient, irrespective of whether there is "public concern or speculation" that needs to be addressed. However, as a matter of principle, the fact that the information is public, without more, should not be a factor in favour of publication (we consider this in more detail when reviewing the case studies below). It is particularly concerning when having regard to the fact that the FCA has signalled an intention to reactively announce where a firm has made a disclosure to the market. As noted below in relation to proactive disclosures, an FCA announcement is likely to generate far more publicity than a firm disclosure and the potential reputational impact is likely to be significantly more damaging. If the FCA opts to do this as a matter of course, it could lead to a majority of investigations being announced by the FCA rather than the incremental increase claimed. Moreover, it is unclear whether generic disclosures about the existence of an investigation (by the firm, or other authorities) would be sufficient for the FCA to consider the subject matter to be in the public domain;
• Anonymous announcements: The PIF table set out in CP24/2 Part 2 conflates factors weighing in favour and against making more general (anonymous) announcements about its investigation work and naming the firm that is under investigation. It should be evident to the FCA that it is the latter that is of most concern. While there are factors that will be relevant to both types of announcements, there are clearly factors that will only be applicable to one and not the other. For example, making an announcement on an anonymised basis "would provide an educational benefit for firms and market users to understand the types of conduct [the FCA] are investigating and could drive better compliance with [its] rules or other requirements". The same cannot be said for making an announcement which names the firm and as a result contains no other substance. Based on the specimen examples in the case studies (and as we anticipated in our analysis of the initial proposals), the announcements are likely to be so high-level that they effectively provide no educational benefit whatsoever. Firms would be none the wiser as to the precise types of conduct that the FCA is concerned with and so there would be minimal impact on deterrence/ driving compliance. It is arguable that, where this factor is applicable, it would weigh in favour of not naming the firm because the FCA might otherwise lose the opportunity of making a more detailed anonymised disclosure; and
• Parliamentary pressure: The FCA has added a new factor, "Publishing would help improve our accountability to parliamentary committees by enabling us to share more information in response to significant queries about our involvement in particular issues". In our view, this possibly points to the primary driving force behind the Transparency Proposal.⁵ The FCA has repeatedly been the subject of intense (and sometimes unfair) criticism by Parliament (and in particular, the Treasury Committee) for being unable to share details of its ongoing enforcement action as a result of restrictions imposed under Financial Services and Markets Act 2000 ("FSMA"). Nonetheless, we consider that interest shown by certain members of parliament is not a basis for naming firms under investigation where the regulator would otherwise retain confidentiality. It further stands in contrast to the clear message from the Government (and Parliament more generally) that the FCA needs to prioritise economic growth and international competitiveness (which are arguably at odds with the Transparency Proposal). The correct way to approach the issue is to remind Parliament (and by extension, the public) of the principles of procedural fairness and natural justice which were fundamental elements of FSMA baked in by Parliament when it was legislated, and the constraints under which the regulator operates, and to accept the inevitability of some criticism as part of the job, however unfair. If Parliament requires the FCA to disclose specific matters, then there are parliamentary powers and procedures which may be deployed. In our view, the Transparency Proposal will not eliminate the potential for unfair criticism, and there is a risk that it may simply lead to pressure for further and more detailed disclosures.

Most fundamental, however, is the change in focus from "exceptional circumstances" to "public interest". The latter makes the decision-making process prone to being unduly influenced by, for example, public outrage or political influence. This raises questions of fairness to firms and the UK's attractiveness as a place to invest in financial services.

The FCA's approach to transparency in investigations should be capable of ensuring that there is a clearly defined and reasonably predictable decision-making procedure around public announcements which is not susceptible to inappropriate influence. While the FCA has sought to address some concerns, for the reasons set out below, we consider that the existing "exceptional circumstances" test is already capable of achieving this. We would suggest that the FCA considers this again, or at least seeks to directly address why they disagree with this view.

Exceptional circumstances

We understand from our direct engagement with the FCA that the difficulty it has with the existing test essentially comes down to its own interpretation of "exceptional circumstances":

• The FCA will consider whether a case is exceptional by reference to the cases in its investigation portfolio. This restrictive approach has led Nikhil Rathi to comment that “investment fraud is not exceptional”, apparently discounting the (exceptional) extent of consumer damage;
• It will generally make announcements in respect of 10-12% of the cases in the portfolio; and
• If the FCA were to disclose cases significantly beyond this percentage range, it would find it difficult to square this with the exceptional circumstances test.

CP24/2 Part 2 also provides helpful insights into how the FCA has been interpreting the current test and broadly supports the explanation provided to us by the FCA.⁶

There is an inherent tension in the FCA's analysis. On the one hand, it is emphasising the need for a step change to its approach to achieve outcomes that are not capable of being achieved with its current test. On the other hand, it is (now) suggesting that the changes will only result in a small incremental change in the numbers.

Our view is that the FCA has adopted an unnecessarily restrictive interpretation of what constitutes "exceptional circumstances". There is sufficient flexibility within the wording of the existing test for the FCA to make the incremental change it is seeking without needing to replace it with the PIF. This is supported by our table above which shows that the substance of what is already contained in EG 6.1 is largely reflective of the proposed PIF factors and differs in ways we find unconvincing, as we explain above. In fact, the PIF expressly sets out more factors weighing against disclosure than the current test. Had the FCA changed its approach to interpreting the "exceptional circumstances" test, we doubt that anyone would have objected, or even noticed, not least because its current approach to the exceptional circumstances test was not widely appreciated until now. We acknowledge that the consultation process that the FCA is following has allowed for challenge and debate and is to be commended for that reason.

As an alternative to the Transparency Proposal, the FCA might consider simply clarifying the guidance in EG 6.1, and in particular the factors set out in EG 6.1.3 and EG 6.1.4, to better explain its approach going forwards to determining whether there are "exceptional circumstances".

Anonymised announcements

Critically, the FCA's willingness in CP24/2 Part 2 to acknowledge the advantages of using anonymised disclosures should allow it to achieve the outcomes it is seeking together with the existing test.⁷ The fact that the FCA is considering an "Enforcement Watch" publication (which is something we have called for even ahead of the Transparency Proposals) is to be welcomed.

Anonymised disclosures would allow the FCA to provide sufficient detail about the conduct it is concerned with to educate the market and deter further misconduct in a timely way. Where an anonymised disclosure would be inappropriate or insufficient, the exceptional circumstances test would provide the means for it to make an announcement naming the firm.

In our view, the FCA's desired outcomes could be achieved through anonymised disclosures in the vast majority of cases. For that reason, whether the FCA decides to persist with the Transparency Proposal, or opts to take a more flexible approach with the current test, we consider that the FCA should specifically include a factor requiring it to:

• consider whether it can achieve the same, or similar outcome(s) in another way, including by making an anonymised disclosure; and
• to only name a firm that it is investigating where there are clear reasons why making an anonymised disclosure would not be appropriate.

Case studies

While we can see that there are certain factors that may have weighed in favour of making announcements in the case studies considered by the FCA, we do not agree with the FCA's conclusions in any of these cases.  In particular, we are concerned with the way that the FCA has approached its analysis of the PIF factors. There appears to be a lack of rigorous, evidence-based decision-making, which pays insufficient regard to the potential consequences of announcements.

British Steel Pension Scheme ("BSPS")

There are two key points that need to be clarified with the BSPS case:

• by the time the FCA commenced its investigations, the problematic advice had already been provided to British Steel workers and the FCA had already used its supervisory powers to prevent firms from providing more advice; and
• the FCA did not commence investigations against all the firms that provided problematic advice (and a customer redress scheme was implemented).

This means that, contrary to the submissions made by the FCA to the Treasury Committee,⁸ this was not a case that concerned consumer protection.

The only discernible factor weighing in favour of naming the relevant firms under investigation would have been to reassure customers who had received problematic advice from those firms that the FCA was taking action. The difficulty which the FCA has not grappled with is that such an announcement would only have been capable of reassuring customers of the firms that were under investigation. Its specimen announcement could have had the perverse effect of (mis)leading other British Steel workers who had received problematic advice from other firms that the FCA did not believe that there were any issues with the advice they had received.

We further note that it is unknown whether the FCA commenced any investigations against firms in relation to the BSPS case that were subsequently discontinued with no further action. If such firms had been named, the damaging impact on their (likely small) business and reputation would have been significant.

In our view, if the FCA was concerned to reassure impacted customers in this case, it would have been preferable to make a general announcement that it was concerned about the pension's advice given in relation to the BSPS, and that it was exploring the possibility of a customer redress scheme.

Citigroup Global Markets Limited ("CGML")

On first appearances, an announcement naming CGML in this case appears uncontentious. However, on closer scrutiny of the FCA's analysis, the reason for this is because the subject matter was already public. As noted above, that by itself does not mean that an announcement by the FCA would have been in the public interest.

After the incident in question had occurred, CGML made an announcement to the market noting that it had caused the incident.⁹ It was widely assumed in the market that the FCA was looking into what had happened.¹⁰

It is not clear on what basis the FCA suggests that there was "a resulting risk that trust in key markets was being damaged by trading activity conducted in the UK" or that the announcement would have "reassured investors and other market participants that [the FCA] took these incidents very seriously, helping to maintain trust and confidence". There is no evidence to suggest investors or other market participants needed reassurance or had lost trust in the markets due to the incident. Press accounts at the time described the incident as "brief" with brokers reported to have described the event to be "due to an erroneous trade on a day of light activity".¹¹ The market therefore appears to have realised quickly it was caused by error and moved on. Indeed, the FCA appears to recognise this in the case study: "Flash crashes are not particularly rare, this one was brief and [CGML] almost immediately announced its trading error".

In reality, there was no discernible public concern, speculation, or rumour that the FCA needed to address by confirming that it was investigating. Without this, it is difficult to see how applying the PIF would require an announcement in the "public interest".

PricewaterhouseCoopers LLP ("PwC")

In this case, the suspected fraudsters were London Capital & Finance ("LCF"). The primary concern of consumers, investors, and the public centred on whether the FCA (belatedly) was investigating LCF's misconduct. The FCA made its investigation into LCF public.

It is unclear on what basis the FCA suggests that making naming PwC would have provided any reassurance to LCF victims. To the extent that there was any concern regarding the role of LCF's auditors, it was focused on whether they had carried out a proper audit. The Financial Reporting Council ("FRC"), which was the auditors' primary regulator and responsible for looking into this point, made its investigations into PwC, EY and Oliver Clive & Co public. There was never any evidence or suggestion that PwC was involved in LCF's suspected fraud and the FCA's investigation did not involve any investor redress/compensation from PwC.

As far as we are aware, there is no basis to suggest that there was significant public concern about the responsibility of PwC to report to the FCA. The only public statements about that reporting obligation were made by the FCA in submissions to Dame Gloster's independent investigation into the FCA's regulation of LCF.¹² In short, the only stakeholder focussed on auditor reporting in the context of LCF was the FCA, and any announcement would only have served its self-interest rather than the public interest.

We consider that publication of the specimen announcement would have been particularly misleading and prejudicial to PwC. It fails to convey that the basis of the FCA's investigation was whether PwC might have breached an auditor reporting obligation. Instead, it would have carried a real risk of misleading the market into believing that PwC might have had some involvement in LCF's misconduct.

In our view, it would have been preferable for the FCA to communicate its concerns regarding the auditor reporting obligation in a letter to auditors or a general disclosure (not linked to LCF), and in any event to have done so sooner than in the context of this enforcement investigation. 

CB Payments Limited ("CBPL")

The FCA's reasoning in relation to this case demonstrates how the general focus on the "public interest" risks the FCA considering factors not included as part of the PIF and relying upon speculation without any evidential basis:

• Many of the points referred to do not easily align with the factors the FCA has set out in its table of PIF factors.¹³ For example, the FCA has referred to the fact that CBPL was the FCA's first case under the Electronic Money Regulations 2011 and its first action against a firm enabling crypto asset trading. To the extent that these points are connected to a desire to educate the market and help deter wider misconduct, this could not have been achieved through the high-level specimen statement proposed in CP24/2 Part 2; and
• Other points have no evidential basis, for example "Against this backdrop, an announcement of our own investigation may have given market users reassurance that we were closely engaged and taking appropriate action. This may have helped to foster public trust and confidence in the market more generally."¹⁴ It is not clear on what basis the FCA consider that a public announcement about "potential weaknesses in [CBPL’s] financial crime control framework" would foster public trust and confidence. In fact, it is possible that such an announcement could alert criminals to such potential weaknesses which they could seek to exploit as they would know the identity of the firm.

In our view, a generic disclosure would have been capable of achieving the FCA's desired outcomes. We do not find the FCA's concerns regarding Coinbase’s size and market share and the potential impact on smaller firms to be convincing. In the context of the supervisory action being taken, Coinbase would have already known that it was under regulatory scrutiny. There would also have been smaller firms faced with similar challenges who would have stood to benefit from more detailed guidance from the FCA.

A question of numbers?

CP24/2 Part 2 claims that the way in which the proposals were originally introduced obscured the FCA's intention to announce investigations in the public interest in a relatively small number of cases – a "small incremental" change to the current approach in which details of an investigation are only announced in "exceptional circumstances".

We consider this underplays the potential consequences for two reasons:

• First, the numbers referred to by the FCA do not take into account what the FCA intend to do in relation to investigations that are currently made public either by firms or the FCA; and
• Secondly, the focus on numbers is something of a red herring given that the proposals give the FCA wide discretion to change its approach to how it interprets the "public interest" and publish more investigations in the future, regardless of what the present intention may be.

A "small incremental" change?

The FCA states that it currently names firms in circa 14% of cases under the exceptional circumstances test (which is 1-2 cases per year) and that under the PIF, this would potentially double (i.e., to circa 28%/ 2-4 cases per year). The FCA has characterised this as a "small incremental number", while at the same time noting that it could double the number of announcements that are currently made.¹⁵

The FCA refers to two (very different) sets of numbers which we have analysed in the table below:

Public/ Not public		41 open investigations into regulated and/or listed or publicly traded firms16		Investigations opened into 15 regulated firms between Apr 2023 and Nov 202417
		Cases	%	Firms	%
Public	Disclosed by firms (or others)	15	36.6%	518	33.3%
Public	FCA named the firm under the exceptional circumstances test	6	14.6%	1	6.7%
Public	FCA issued warning notice statements	2	4.9%
Likely to become public in 2025		3	7.3%
Not public	FCA would not disclose under the PIF	6	14.6%	4	26.7%
Not public	FCA would disclose on an anonymised basis	2	4.9%	2
Not public	FCA might name the firm under the PIF	7	17.1%	3	20%

Upon scrutinising the figures referred to by the FCA, it appears that they do not tell the full story in terms of the potential impact of the Transparency Proposal. This is primarily because, for the cases that are already public, or soon to become public, the FCA has not explained how they would have been treated under the Transparency Proposal – in particular, there is no indication of whether cases that were disclosed by firms would have been subject to proactive or reactive disclosure by the FCA.

Assuming (conservatively) that the FCA would have proactively (rather than reactively) named firms it is investigating in 50% of cases that were disclosed by firms under the Transparency Proposal, this would mean it would have proactively disclosed the names of firms it is investigating in 50%¹⁹ of cases (i.e., 5-6 cases per year assuming 10-12 cases are opened every year) – calculated as follows:

• 18.3% that would otherwise have been self-disclosed by firms;
• 14.6% named under the exceptional circumstances test (and would presumably be named under the PIF); and
• 17.1% additionally named under the PIF.

That cannot accurately be described as a small incremental increase from the 14% (1-2 cases per year) disclosed under the existing test.

One possible explanation for why the FCA has not factored in cases which were disclosed by firms is that it has assumed that there is no real difference between a proactive disclosure by the FCA and self-disclosure by a firm. We strongly disagree with this because:

• the timing and content of such disclosures by firms are carefully thought through in the context of other relevant disclosures;
• firms make these announcements for a different purpose than the FCA's objectives in publishing a firm is being investigated; and
• an FCA announcement is designed to generate far more publicity and the potential reputational impact of a disclosure by the regulator is likely to be significantly more damaging.

A red herring?

In our view, the numbers, and whether or not the FCA considers the change to be incremental or not, is something of a red herring.

While the current leadership team might seek to reassure us that the Transparency Proposal would only lead to 1 or 2 more cases being announced every year (and only after the strength of feeling by industry and government was made known), that provides no guarantee for what the FCA might do in the future (in particular as personnel change over time). It is evident from the case studies (discussed above) that the PIF can be interpreted and implemented in different ways. It would be open to subsequent FCA decision-makers to take a much wider and aggressive interpretation of what is in the "public interest".

The information now available about the FCA's broader enforcement strategy helps explain how the Transparency Proposal is intended to fit together with its new enforcement approach. A more streamlined portfolio should lead to fewer investigations which conclude with no further action,²⁰ and the faster investigation pace should reduce the limbo period between announcement of an investigation and its conclusion. Whether the FCA is able to achieve this remains to be seen – at the very least, the FCA should delay any changes to the current publicity criteria until the percentage of investigations with no further action has fallen significantly.

In any event, as recent history shows us, different leadership teams can take different approaches towards enforcement. It is therefore possible that the FCA's investigation portfolio may increase again in the future which would undermine these assurances. This is a particular risk given the increasing political pressure on the FCA to be in all places at all times, based on external pressures that there should be "zero failures" across its extremely broad perimeter.

Unanswered questions

We think that the FCA could have done more to address the most important high-level concerns which were raised in response to CP24/2 in CP24/2 Part 2. Rather than re-tread old ground, we have summarised the key points below, and refer to our previous post and House of Lords submission (as reflected in our response to CP24/2).

International competitiveness

Having regard to the practices of regulators in the vast majority of other jurisdictions that act as financial centres, the FCA's proposal risks making the UK an international outlier and undermining the financial services industry which sits at the heart of the UK economy and is a key driver of growth.

There is nothing convincing in what the FCA has put forward in CP24/2 Part 2 to address this concern. We find its reference to being "unique" internationally because of its "breadth of responsibilities" and "the range of partners [it] work[s] with domestically and internationally" particularly difficult to understand as a basis for the Transparency Proposal. In our view, greater powers should warrant more, and not less, circumspection in how they are wielded, including in relation to transparency.

Circumventing safeguards enshrined in FSMA

The proposal undermines the statutory protections enshrined in FSMA in respect of publication of, or concerning, statutory notices (e.g., warning notice statements) and appears to override the intention of Parliament as reflected in statements made during the legislative passage of the relevant bills. CP24/2 Part 2 notes that the FCA is "not seeking to do something new" and points to its existing policy. This ignores the relevant legislative history and fails to address the fundamental concern that the Transparency Proposal undermines the regime set up by FSMA.

The governance around the decision-making process provides a good example of how the safeguards in FSMA are being circumvented by the Transparency Proposal. CP24/2 Part 2 states that decisions will be made at Executive Director level and that "the decision maker will be provided with information about any representations received, along with legal advice from an FCA lawyer who has not been part of the investigation team." This suggests that the decision maker may be directly involved in the investigation and is at risk of lacking independence. This stands in stark contrast to the process for deciding whether to issue a warning notice statement which is taken by the Regulatory Decisions Committee.

Other proposed changes

The FCA has outlined further changes to its proposal in CP24/2 Part 2.

Procedural tweaks

In our view, the following comprise aspects of the proposal that the FCA was always going to be likely to give ground on, and should be viewed as tweaks to the Transparency Proposal:

• Notice period - Instead of giving firm's one day's notice, the FCA will now allow firms 10 business days to make representations, plus a further 2 days' notice from the time it decides to make an announcement naming the firm;²¹ and
• Retrospective effect - If the FCA proceeds with the new proposal, it will not apply retrospectively to ongoing investigations.²²

While these changes are welcome, it will still force firms to operate under a far shorter timetable than that which would currently apply in making disclosure announcements, which could cause governance issues.

Timings for announcements

The FCA has provided some further details on the factors it will consider in relation to when an announcement should be made.²³ This decision will be of critical importance to firms, and the decision-making procedure needs to be clearly defined and reasonably predictable. Regrettably, there is too little information in CP24/2 Part 2 to meaningfully understand what this procedure would look like and how it would work in practice, and it will be important to elicit this in the consultation period.

Unregulated firms

The FCA has also explained that the Transparency Proposal was influenced by the fact that 60% of its enforcement portfolio comprise investigations into unregulated firms.²⁴ While CP24/2 Part 2 explains why unregulated firms are different from regulated firms, no attempt is made to distinguish how these firms should be treated when it comes to transparency in investigations. On the contrary, the FCA states that its "transparency proposals would equally apply to our investigations into unregulated firms".

If the FCA is concerned that the large number of investigations into these types of firms present unique challenges for the exceptional circumstances test, then a preferable, more nuanced approach would be to apply a different test in respect of unregulated firms rather than try and amend the existing test for all firms. Indeed, we note that the Transparency Proposal would be more readily understandable and acceptable if it was only intended to apply in relation to unregulated firms.²⁵

Conclusion

The FCA has clearly heeded the strong response to its original proposal, but in our view, the changes in CP24/2 Part 2 do not go far enough.

While the FCA has tried hard to present the Transparency Proposal as representing only a small incremental shift to its current approach, we have real concerns with how it will be implemented in practice, and the risk that it will be used more expansively in the future. The fundamental issues with the Transparency Proposal have not been resolved, and the new changes in CP24/2 Part 2 present additional concerns.

While we whole-heartedly agree with the objectives that the FCA is pursuing, we remain unconvinced as to why these cannot be better achieved through the current exceptional circumstances test together with making anonymised disclosures.

We will be responding to CP24/2 Part 2 and welcome engagement by the FCA with our concerns.