Last week the FCA and PRA jointly released a consultation paper setting out proposed amendments to the Enforcement process. These include significant changes aimed at improving the transparency of the decision-making process and also the subjects’ understanding of the matters investigated and the progress and direction of the investigation.
These amendments follow recommendations made by HMT in its late 2014 review of Enforcement decision-making and also by the 2015 Green report into the FSA’s Enforcement actions following the failure of HBOS.
Here we highlight those changes to process that we believe will be most significant from the point of view of firms and individuals subject to Enforcement investigations (“investigation subjects”).
Improved information to investigation subjects
The paper proposes providing further information to investigation subjects at a number of different points. The recommendations should significantly improve investigation subjects’ understanding of the regulators’ concerns and the issues giving rise to them.
First, at the outset of an investigation, the subjects will now receive:
- A summary of what the FCA believes the potential regulatory breaches are
- An explanation of the matters the FCA says gives rise to those potential breaches
- An explanation of what referral criteria the FCA applied as part of the referral decision.
The PRA also intends to provide more information to subjects at the outset of an investigation, but will set out the detail of its intentions when it publishes its referral framework later this year.
Second, to further improve subjects’ understanding of the concerns being investigated, scoping meetings between regulators and subjects will include information on the direction of the investigation and timetabling of key milestones. This is likely to mean that the meeting will be less process focused and held somewhat later in the investigation cycle than has been practice to date.
Third, the PRA and FCA will provide periodic updates to investigation subjects as to the progress of the investigation. These updates will be at least every three months with a focus on the practical steps that have been taken to date within the investigation.
Discount for early settlement
The FCA provides a settlement discount scheme which allows for reductions in penalty depending on the stage at which settlement is reached (the earlier settlement occurs, the larger the discount). The FCA proposes abolishing the lesser stage 2 and stage 3 discounts, leaving the 30% stage 1 only. The idea is that this will assist in demarcating, at an early stage, between those cases that can be settled and those that will be contested.
The consultation paper can be found here: http://fca.org.uk/your-fca/documents/consultation-papers/cp16-10
The PRA and FCA invite comments by 14 July 2016.
Charles Hastie is Regulatory Head at Clutch Group, working out of the company’s London office. Charles harnesses his long-standing regulatory investigation experience to develop strategic solutions for Clutch’s financial services clients. He establishes ongoing liaisons with key opinion leaders, government officials, and regulatory bodies to ensure that significant developments in the field are monitored and relayed to clients. For more information, contact Charles at [email protected]