The House of Lords Financial Services Regulation Committee has
highlighted its concerns about the Financial Conduct Authority's
proposal to announce in advance its enforcement investigations
into firms. This is the committee's first intervention since its
creation earlier this year.
In a letter to Nikhil Rathi, Chief
Executive of the Financial Conduct Authority (FCA), published
today (22 April), the committee warned that the FCA's proposal
risks having a disproportionate effect on firms named in
investigations, where those firms are subsequently cleared of any
wrongdoing, particularly given how long many previous
investigations have taken and the numbers which have resulted in
no further action.
The committee believes the FCA's plan risks the overall integrity
of the market and possible unwarranted impact on blameless firms
identified as being under investigation. Additionally,
individuals, whether named or not may have their reputations
unfairly tarnished through association with a publicised
investigation.
The committee will be taking evidence on this proposal, so it is
calling on the FCA to extend its brief consultation period, which
is currently due to close on 30 April 2024, and take no further
action until the committee has taken evidence and reached a
conclusion.
of Drumlean, Chair of the
Financial Services Regulation Committee, said:
“The FCA's plan to announce the opening of new enforcement
investigations could have a highly negative impact on firms
subsequently cleared following a potentially lengthy
investigation. Despite having done nothing wrong, those firms,
and individuals associated with them, risk having their
reputations tarnished. This could also unnecessarily distort the
market.
“'Innocent until proven guilty' is a fundamental principle of our
justice system. The committee is presently unconvinced that the
FCA has justified departing from this important principle and
taking an approach that is at odds with almost all other
financial services regulators.
“The FCA has not carried out a cost-benefit analysis of its
proposal or even assessed its likely impact. That's why we're
calling on the regulator to pause implementation until our
committee has had a chance to gather evidence and scrutinise its
proposal.”
More about the new Financial Services Regulation
Committee
The Financial Services Regulation Committee was created in early
2024 following the passing of the Financial Services and Markets
Act 2023 (FSMA 2023) which repealed retained EU law for financial
services and established a new framework for the regulation of
financial services in the United Kingdom.
The committee is chaired by Lord Forsyth of Drumlean. Its members
are: Baroness Bowles of Berkhamsted; Baroness Donaghy; Lord
Eatwell; Lord Grabiner; Lord Hill of Oareford; Lord Hollick; Lord
Kestenbaum; Lord Lilley; Baroness Lord Sharkey Sharkey; Lord
Smith of Kelvin; and Lord Vaux of Harrowden.
