Legal experts are reacting to the UK’s House of Lords financial services regulation committee report rebuking the Financial Conduct Authority’s ‘naming and shaming’ of firms facing investigations.
Karl Foster, commercial partner at law firm Spencer West said: “Given the pace of innovation and product development in today’s financial services environment, together with the complexity of regulatory compliance, the FCA’s plan to routinely name and shame perversely threatens the transparency and cooperation of firms that it seeks to foster stronger relationships with.
“This new approach to public interest is fundamentally designed to strengthen deterrence and encourage whistleblowers to come forward however, in pursuing these plans to name and shame will mean firms will be less inclined to engage with the regulator in a collaborative manner at an early stage in fear of negative publicity.
“This can only harm the UK’s competitiveness in dampening firms’ enthusiasm to innovate where an investigation alone can have far reaching consequences irrespective of wrongdoing. Given the FCA’s acknowledgement of the government’s push for growth, and the regulator’s subsequent suggestion that it will reduce the consumer duty compliance burden on firms, these plans will undoubtedly continue to attract criticism and demonstrates the difficulties the FCA faces in balancing risk and growth.”
Imogen Makin, counsel at WilmerHale, said: “The Committee’s conclusions will be welcomed by the financial services industry and will put further pressure on the FCA either to water down their proposals, or abandon them entirely.
“There undoubtedly remains a fundamental concern as to why such changes to their enforcement policy are required; as the Committee has acknowledged “In the context of its existing powers, the FCA’s explanation for how these proposals will further its objectives is unconvincing”.
“The Committee’s comments that there is a “worrying disconnect with industry on the part of senior FCA leadership” ring true. The hope is that the FCA learns from this latest debacle and commits to engaging further with, and listening to, the industry.
“The regulator should take heed of the Committee’s conclusions and give more weight to its secondary international competitiveness and growth objective, rather than acting in the hope that quick publicity demonstrating its actions will repair the damage done to its reputation in the wake of high-profile failures and criticism in recent years.”
Jill Lorimer, partner in the financial services regulatory team at Kingsley Napley, said: “The FCA will be dismayed that the amendments it has made to its ‘name and shame’ proposals have done so little to assuage fundamental concerns. Entitled “How not to regulate”, today’s report does not make easy reading for the regulator.
“According to the report, the fact the FCA was surprised by the strength of opposition to its initial proposals ‘suggests a worrying disconnect with industry on the part of senior FCA leadership’. The regulator is criticised for not trailing the proposals on its Regulatory Initiatives Grid and failing to engage at a sufficiently early stage with industry in a way which has damaged the sector’s confidence in the regulator.
“The report condemns the FCA’s explanation for how these proposals will further its objectives as ‘unconvincing’. The Committee finds the regulator’s initial stance that the proposals aligned with international standards to be ‘misplaced and misleading’ and states that it is ‘unconvinced’ by its explanation as to how its proposals will further its competition objective.
“While the modifications made by the FCA to date in respect of the criteria for publication are broadly welcomed, there remains in the Committee’s view some way to go to get the balance right.
“It is difficult to see how the FCA will proceed in the light of this report. The Committee’s criticisms are not limited to technical issues of implementation but go to the heart of the FCA’s approach to this issue and its credibility as a regulator. Its conclusions, and the excoriating terms in which they are expressed, must add to the current pressure on CEO Nikhil Rathi.”
