The House of Lords Financial Services Regulation Committee has released a report, ‘Naming and shaming: how not to regulate’, focusing on addressing the difficulties that the sector faces when it comes to the FCA and preventing more damage to the reputation of companies and the broader financial services landscape.
The initiative follows the Committee’s inquiry on the FCA’s consultation paper on publicising enforcement investigations, with the organisation, which was appointed in 2024 to consider the regulation of financial services in the UK, concluding that the regulator did not make a convincing case for a change to its existing capabilities, which already enable it to call out an enforcement investigation early in exceptional circumstances. Additionally, respondents to the Committee’s Call for Evidence underlined the lack of evidence offered by the FCA to justify this turn.
Furthermore, the Committee underlined that if the FCA continues with these changes, it could scale the risk that investigations could be publicly announced, reputational damage to companies and individuals could occur, and media speculation could arise, however, no regulatory action is taken. At the same time, the organisation mentioned that it remained unconvinced that the proposed public interest framework is set to enable proportionate and consistent decision-making over whether to call out an enforcement investigation early. The FCA’s procedures have been under the Committee’s scrutiny, especially due to the lack of engagement with financial services companies beforehand and the failure to provide prior warning to the industry that the consultation was forthcoming.
Following its consultation, the FCA faced immediate criticism from across the financial services sector and legal companies, as well as from the previous Chancellor of the Exchequer. The Committee showed concern over the regulator’s reaction to the backlash, highlighting that it demonstrated a disconnect between the FCA and the sector it regulated;
Witnesses showcased concern over the UK being at risk of becoming an international outlier as no other jurisdiction routinely publicises investigations of how the FCA is proposing;
Even if it was asked to conduct and publish a cost benefit analysis (CBA), the FCA has thus far refused to do so, stating that it only does CBAs for rules and guidance on regulation. The Committee recommended that the FCA works on this policy and practice.
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