On 1 February 2017, the Financial Conduct Authority and the Prudential Regulation Authority released a policy statement that the regulators say is aimed at strengthening the transparency and effectiveness of their enforcement and decision-making processes. This policy statement follows on from an earlier Treasury review in these areas.
In summary, the regulators are introducing changes in the enforcement process which include:
- how decisions are made as to whether to refer an issue to Enforcement and Markets Oversight or the Regulatory Action Division for investigation;
- the provision of more information to the subject of an investigation about why they have been referred for investigation; and
- regular updates throughout an investigation, as well as ensuring there is increased engagement with the subject of the investigation.
The FCA has announced other changes to its enforcement process. The most headline-grabbing is the introduction of a regulatory process for partly contested cases (effective 1 March 2017).
This will allow parties under investigation to agree certain elements of a case with the FCA (through a “focussed resolution agreement” as to penalty, facts, liability or a combination of these issues) but still contest the other elements before the Regulatory Decisions Committee (the FCA’s regulatory decision-maker). They will still be able to get a discount on any penalty imposed upon them by the FCA that will reflect the extent to which issues have been agreed with the FCA.
The FCA thinks that the new policy could help it to develop a body of more detailed regulatory decisions that can be translated into clear advice for the regulated community in the UK as to what the FCA regards as acceptable conduct.
Mark Steward, Director of Enforcement and Market Oversight at the FCA, said: “It is essential that our enforcement decision-making processes command public confidence and operate both efficiently and fairly. The changes set out in [the Policy Statement] are designed to achieve just that and reflect the views of stakeholders who responded to our consultation.”
The changes announced by the regulators will be broadly welcomed as many in the regulatory community feel that the enforcement and disciplinary process can be opaque, slow and uncertain despite the fact that these process can often being critical, possibly even fatal, to a firm or individual’s business. How these changes will play out in practice remains to be seen. Again, a case of watch this space…