On 24 April 2019 the FCA published its final “Approach to Enforcement” document, following a consultation period which ended in June 2018. The approach document attempts to provide transparency and explain the FCA’s approach in greater depth.
The FCA’s overriding principle in its approach to enforcement is substantive justice – a commitment to achieve fair and just outcomes in response to misconduct. It intends to conduct consistent and open-minded investigations in order to achieve the right outcomes. Key enforcement themes in the FCA’s approach include:
- Improving detection. The FCA hopes that by increasing the likelihood of detection, they will manage to reduce and prevent serious misconduct in a way that severe penalties and sanctions have failed to do.
- Identifying harm and assessing misconduct. The FCA aims to identify serious misconduct quickly so as to limit the harm it can cause on the markets it regulates. However, the FCA acknowledges that not all breaches constitute serious misconduct and, where suitable, the FCA expects minor or technical breaches to be remedied elsewhere.
- Using investigations as a diagnostic tool. An investigation will only be started where the FCA suspects serious misconduct to have taken place. Following on from the recommendations of the Green Report, the FCA intends to use investigations as a diagnostic tool in order to fully understand the facts, rather than pre-judge the outcome of an investigation. In addition, where it is suspected that individuals are involved in serious misconduct, those individuals will be investigated alongside the firm. However, where there appears to be no substance to allegations or no evidence to support serious misconduct, the FCA promises to close investigations promptly. It remains to be seen whether this will have a practical impact on the FCA’s caseload: the FCA had 356 investigations open as at September 2018, but had closed without enforcement action only 39 investigations in the year 2017/18. Interestingly, as part of its Enforcement Guide review, the FCA is considering whether it could provide information on its website about investigations; any specific proposed changes to the FCA’s publicity policy will be set out in a separate consultation.
- Addressing harm. The FCA encourages firms to take positive action to respond to perceived misconduct, which may result in the firm acting in a way they think is right before the conclusion of an enforcement investigation. For those firms who voluntarily account for and redress misconduct, the FCA will “give substantial credit“; in extraordinary cases, it may determine whether a sanction is required at all. Firms who fail to act in this way will receive tougher sanctions. We have seen this in a number of recent Enforcement actions where the firm’s decision to provide material redress has led to lower financial penalties being imposed. In some cases, such as with the rent-to-own provider BrightHouse, the FCA has announced a redress programme without any associated enforcement action being taken against the firm.
The document does not signal any significant changes in the FCA’s day-to-day approach to enforcement matters, but rather confirms the trends and patterns we have observed for a number of years such as the marked increase in the number of open Enforcement investigations since the appointment of Mark Steward as the Director of Enforcement and Market Oversight in 2015. It will be interesting to observe whether the FCA’s approach, together with the reviews in progress of the Enforcement Guide and its penalties policy, result in meaningful changes in the conduct of investigations and enforcement actions by the FCA.