The FCA has released the following statement today, which we have published below in full – as well as including some reactions to the news from across the industry and beyond.
We have published a letter to the Treasury Select Committee, setting out significant improvement in the pace of our investigations as well as next steps on our approach to transparency of enforcement investigations. Given the lack of consensus, we will not take forward our proposal to shift from an exceptional circumstances test to a public interest test for announcing investigations into regulated firms.
Following extensive engagement, there is support for reactively confirming investigations already in the public domain; public notifications which focus on the potentially unlawful activities of unregulated firms and regulated firms operating outside the regulatory perimeter; and publishing greater detail of issues under investigation on an anonymous basis. We will take forward these proposals, and publish our final policy by the end of June.
Nikhil Rathi, Chief Executive Officer of the FCA, commented:
“We are speeding up our enforcement work. On our enforcement transparency proposals, we have always aimed to build a broad consensus. Considerable concerns remain about our proposal to change the way we publicise investigations into regulated firms, so we will stick to publicising in exceptional circumstances as we do today. We will implement changes which have commanded wider support and which we believe will help support our efforts to protect consumers from harm.”
Joint FCA and PRA update on diversity and inclusion
In 2023, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) consulted in parallel on proposed rules and expectations aimed at improving diversity and inclusion in regulated firms. In light of the broad range of feedback received, expected legislative developments and to avoid additional burdens on firms at this time, the FCA and PRA have no plans to take the work further.
FCA update on non-financial misconduct
We continue to prioritise our work to tackle non-financial misconduct, which we believe can help to improve outcomes for markets and consumers and reduce harm. But it is important that our approach is proportionate and aligned with planned legislation, so we are taking some further time to get this right and will set out next steps by the end of June this year.
Commenting on this announcement from the FCA, Jill Lorimer, partner in the Financial Services Regulatory team at Kingsley Napley LLP, says:
“The FCA is shelving three of its flagship initiatives. Controversial plans to ‘name and shame’ firms under investigation and to scrutinise their D&I credentials have been dropped: proposals to toughen up rules on non-financial misconduct are now under review. This is a hugely significant development. The regulator has long faced allegations of “scope creep” – today’s announcement is a clear indication that the regulator accepts that its ‘name and shame’ proposal was deeply flawed from the outset. Looking ahead it will be focusing less on new initiatives likely to increase red tape for firms and more on its secondary objective of facilitating international competitiveness and the growth of the UK economy.“
Adding his response to the proposals, Chris Cummings, CEO of the Investment Association, said:
“We are extremely pleased the FCA has listened to industry concerns and agreed to drop the proposed changes to when regulated firms under investigation are named, instead refining the exceptional circumstances test as we recommended. It is vital that the UK remains globally competitive and attractive for investors and today’s decision from the FCA demonstrates its willingness to deliver on its secondary objective to secure UK competitiveness. We will continue to work with the FCA in support of their objective to improve the speed and transparency of enforcement action.”
ABI Director General Hannah Gurga said: “The FCA’s decision to not take forward its proposals to publicise enforcement investigations is extremely welcome. We’ve consistently stressed that this would have had detrimental impacts on consumers, firms, and the reputation of the UK’s regulatory system. So we fully support its decision to drop this approach. We’re also pleased to see that its latest proposals are in line with our call for a continuation of its current process, with a small number of additional powers to address specific gaps.”
Furthermore, commenting on the FCA’s update on diversity and inclusion, Gurga said: “Advancing and promoting diversity, equity and inclusion, and improving representation in the workplace is vital to an effective insurance and long-term savings industry. While we had supported the FCA’s proposals, we will continue to champion DEI across our industry through our Blueprint, Allyship Awareness training, and collaboration with members and stakeholders. We await the regulator’s update on its non-financial misconduct work later this year.”
Imogen Makin, counsel at WilmerHale, said: “This is a welcome acknowledgement of the concerns raised by the industry and its advisers. The FCA will need to keep responses to the consultation in mind when finalising the policy statement. Particular attention is needed around the publication of greater detail about the issues under investigation. For example, despite the FCA’s statement that this will be on an anonymised basis, care is needed to ensure that neither firms nor individuals can be identified by the details published.”
Wendy Saunders, Partner and Head of Financial Services at Lewis Silkin, commented: “It is important that financial services firms support diversity and inclusion to create positive cultures for their staff and to achieve sustainable long-term growth, and that they engage staff who are fit and proper to perform their roles and deliver good outcomes for customers.
“However, the FCA’s proposals on diversity and inclusion would have imposed unwarranted costs on firms without delivering clear benefits, and the proposals as drafted on non-financial misconduct would have completely undermined certainty and predictability in engaging regulated staff in the financial services sector. The FCA in a recent letter to the Prime Minister acknowledged that certainty and predictability underpin business and investor confidence.
“It is therefore a huge relief that the FCA is no longer proceeding with these proposals that would have negatively impacted financial services firms, the government’s push for economic growth and the FCA’s satisfaction of its own secondary objective of international competitiveness and growth of the UK economy.”
Victoria Symons, Partner and Head of Corporate at Cripps, said: “Female leaders in business – including myself – will be deeply disappointed that the FCA and PRA have chosen to weaken their guidelines on diversity in business. Our public bodies should not be so easily swayed by the prevailing wind from across the Atlantic. It’s worth remembering that guidance was originally brought in after an enquiry which evidenced sexual harassment and misogyny in the City, and that businesses with greater diversity consistently outperform their competitors in terms of innovation and financial performance. Today, women in all industries continue to face pay disparity and unequal access to opportunities. Businesses need greater engagement, not less – which is why Cripps continues to call for mandatory rules and transparent reporting over voluntary industry initiatives.”
