In its response to the consultation released today, PIMFA has said that in its view, the FCA’s proposals for public announcements of enforcement action could be very damaging.
PIMFA, the trade association for wealth management, investment services and the financial advice and planning industry, has today (30 April 2024) again expressed serious concerns about the Financial Conduct Authority’s (FCA) proposals to make public enforcement investigations of financial services firms.
Responding to the FCA’s consultation paper: CP24/2: Our Enforcement Guide and publicising enforcement investigations – a new approach, PIMFA has raised a number of concerns around the potential negative impact of making enforcement investigations public at the start of the process.
PIMFA supports the principle of an empowered, assertive, and proactive regulator. But we share the concerns expressed across the financial services industry about the likely negative impacts the proposal to publicise the name of firms at the start of an investigation will have on the named firms and on the functioning of markets.
There is a very real danger the proposals will damage the competitiveness of the UK’s financial services sector as investors are driven away, with the City’s attractiveness as a place to come to do business also diminished.
In considering its approach, the FCA must surely be aware that larger listed firms subject to public enforcement activity will almost certainly be subject to significant market volatility because of shareholder action.
Beyond the financial implications, consideration should be given to the reputational impact of an investigation announcement on the firm, its staff, and its customers particularly when exacerbated by press speculation.
The FCA’s argument that an investigation does not automatically mean that there has been misconduct or breaches of the requirements shows a degree of naivety around the way the real-world works.
In fact, the announcement of an investigation will lead many to believe that there is no smoke without fire and so guilt on the part of the firm will be assumed immediately.
For smaller firms, the impact of such a public announcement of an investigation could be devastating with clients leaving such firms in their droves despite there being no immediate evidence of actual wrongdoing.
Alexandra Roberts, Head of Regulatory Policy and Compliance at PIMFA, commented: “PIMFA believes in the principle of a tough regulator but we are deeply concerned about the negative impacts these proposals may have.
“We believe these proposals could lead to a significant erosion over time in consumer confidence, and trust, in financial services, as well as to investor confidence. Public announcements of enforcement investigations might also lead to significant outflows of assets for many larger firms – potentially leaving them hollowed out – and sharp falls in the share price of those firms that are listed on the stock market.
“We cannot understand how these proposals support the FCA’s role of promoting UK competitiveness and economic growth, while ensuring consumer confidence through the way in which it supervises and regulates the industry. The proposals appear to contradict the former and do little for the latter.”
