Watchdog should halt plans for ‘naming and shaming’ firms, says Lords committee
The FCA launched proposals last year which would allow it to announce when it has opened enforcement investigations into financial firms.
The UK’s financial watchdog should not push forward with plans to routinely “name and shame” firms facing investigations, according to an influential House of Lords committee.
The Lords Financial Services Regulation Committee warned that announcing enforcement investigations early without addressing concerns over the plans could damage the reputation of companies who may never face regulatory action.
The chairman of the committee said the Financial Conduct Authority (FCA) was unable to make a strong argument for boosting existing powers and that its consultation process was an “abject failure”.
Early last year, the FCA launched proposals which would allow it to announce when it has opened enforcement investigations into financial firms, which it currently only does in very limited cases.
It would mean “naming and shaming” the companies being investigated, regardless of whether it decides there has been misconduct or a breach of rules.
The move prompted a widespread backlash, including from former chancellor Jeremy Hunt, who warned the watchdog to reconsider its plans over fears they could damage the UK’s standing internationally.
In November, the FCA agreed to water down proposals.
Firms will now be given 10 days’ notice before any announcement is made, rather than the one day previously suggested.
But the Lords committee – which has questioned FCA boss Nikhil Rathi and other officials in recent weeks – said it still has concerns.
In a new report, the committee cautioned that the FCA could increase the risk of reputational damage to firms and individuals, and media speculation could arise after investigations are announced without action ultimately being taken.
It also cited “lack of engagement with financial services firms beforehand” and said there was a failure to give any warning to the sector that the consultation would take place.
Lord Forsyth of Drumlean, chairman of the Lords committee, said: “It was incumbent on the FCA to make a strong and unequivocal case for why such a fundamental change was needed and it has failed to do that.
“Its consultation on the changes has been an abject failure and even the FCA chairman acknowledged this has not been the FCA’s finest hour.
“Less than 18 months ago the FCA stated that it recognised that the disclosure of an enforcement investigation could inappropriately damage a firm’s reputation if the investigation did not substantiate the FCA’s concerns.
“We simply could not understand the FCA’s about-turn in such a short period of time.”
An FCA spokeswoman said: “We proposed being more transparent about our enforcement investigations to improve accountability, public confidence and information for consumers and firms.
“We should have handled the initial consultation better, for example engaging on the proposals in advance.
“As the committee acknowledges, we took that feedback on board. We engaged extensively with industry and revised our proposals.
“We’ll consider the committee’s report carefully, alongside the other feedback to our consultation, as we decide on the next steps on the proposals.
“We also welcome the recognition that our efforts to increase the pace of investigations are working.”
