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FCA's Plans to Curtail the Role of the Regulatory Decisions Committee

Posted on 30 September 2021

In July 2021, we reported that the FCA was planning to redesign the role of the Regulatory Decision Committee. Later that month, the FCA began its consultation, with a view to completely abolishing the RDC's role in supervisory decision making.  We responded to the consultation to make clear our objections, outlining our real concerns about how the proposed changes could lead to real unfairness and harm the quality of decision making.  The text of our response is reproduced below.

Executive Summary

We are broadly opposed to the changes currently being proposed by the FCA. Whilst we accept that efficiency improvements could be made to the current RDC process, the RDC process ensures that decision making is fair, transparent and takes account of all material factors. The proposed procedures should not “sacrifice fairness on the altar of speed and convenience, much less expediency.”[1] In our view, there is a real risk that this is precisely what the proposed changes do.

Our experience is that our clients are often sceptical of the fairness of FCA decision making. In most cases, we are able to point to the existence of an independent RDC to provide reassurance that there will be a fair process. Absent an independent RDC, that reassurance will disappear.

The Consultation Paper (CP) at 5.7 states “none of the proposed changes removes any of the rights and protections that firms and individuals subject our decision making processes have”. In light of the proposed removal of the right to make oral representations and removal of the right to be provided with communications with decision makers, we cannot understand how that can be the case.

Q1: Do you agree with the proposal to move some statutory notice decision from the RDC to the Executive? Please give reasons for your answer.

The FCA’s rationale for the proposed changes are unclear and we do not understand how they will lead to better decision making. The CP at 5.5 states “Our Transformation Programme seeks to place greater emphasis on individual responsibility and accountability for decisions. Rather than having decisions taken by RDC members who aside from the Chair, are not FCA staff, we want more decisions taken by our senior staff.”

The FCA has not explained why it wants “more decisions taken by senior staff” and how this will lead to better outcomes.

In its discussion paper on diversity and inclusion (DP21/2) the FCA rightly focusses on the importance of “diversity of thought” in decision making. The RDC consists of a range of experienced, knowledgeable and, importantly, independent individuals with deep experience of financial services as well as other regulated professions and industries.

In contrast, FCA senior individuals do not bring the same diversity of thought. The fact that senior individuals work for an organisation with its own culture and priorities (sometimes for many years) means that there is a real risk of groupthink and a reluctance to challenge colleagues.

In our experience, the ability of firms and individuals to challenge the FCA through representations to an independent RDC, frequently results in the highlighting of flaws in FCA thinking and a decision which is materially different to that originally proposed by the FCA. Removing that right will result in sub-optimal decision making by the FCA.

We would expect that in a CP of this nature the FCA would include statistics showing at least the proportion of supervisory cases which are heard by the RDC and which result in an outcome materially different to that proposed by FCA staff.

We are also sceptical about whether the changes will result in the suggested efficiency savings. In our experience most of the work undertaken as part of the RDC process is the proper preparation of evidence and submissions to the RDC. The quality of this work should not depend upon the identity of the decision maker. The CP highlights that decisions by the RDC follow a procedure which is more formal and structured than for decisions by Executive Procedures. This formal process ensures that decisions are made which are fair and transparent. Any departure from the process will risk the cutting of corners, rubber stamping and decisions which are less fair.

The FCA properly identifies that one of the advantages of the RDC procedure is that communications between FCA staff and the RDC is transparent and disclosable. This ensures that FCA submissions and communications with decision makers are well thought through, properly argued and refer to all material information. In light of Upper Tribunal criticism contained in Frensham v FCA [2021] UKUT 0222 (TCC) and Forsyth v FCA and PRA [2021] UKUT 0162 (TCC) the industry will lack confidence in the FCA’s ability to bring all relevant matters to the attention of decision makers, absent such transparency.

Whilst we are opposed to the proposed changes to the decision making process, if it is to be the case that decisions are taken using executive procedures then as a matter of natural justice and fairness, it is vital that firms and individuals are provided with the material upon which decision makers have made their decision. In our view, failure to do so will be incompatible with regulatory principle 3B(h) “that the regulators should exercise their functions as transparently as possible”.

At 5.10 the CP claims that having two sets of decision makers on the same matter can lead to duplication and delay. We disagree. The circumstances where a second supervisory notice may be necessary are those which benefit from the review of a fresh pair of eyes. As set out above, the most significant work is in preparation of papers for the decision makers – changing the decision makers should not materially affect this.

Q2: Do you agree with the categories of decision that we suggest? If not, which statutory notice decisions do you consider the RDC should keep? And which statutory notice decisions should be made under Executive Procedures?

We agree with FCA proposals to dispense with the requirement for RDC Chair approval to commence civil and criminal proceedings. The oversight of the court is sufficient to ensure fairness in these proceedings. We consider that all other decisions should remain with the RDC.

Q3: Do you agree with the proposed changes to the definition of Senior Staff Committee meeting under Executive Procedures? Please give reasons for your answer.

If the FCA intends to dispense with the RDC for decision making, then it is all the more important that the decision making body should be as diverse as possible. For this reason the FCA should retain a minimum of three employees on the panel.

Q4: Do you agree with the proposal that oral representations may only be made to Executive decision makers in exceptional circumstances? If not, please give reasons for your answer.

Q5: Do you agree with the proposed definition of exceptional circumstances? If not, please explain how you would define exceptional circumstances.

We disagree with the FCA proposal only to allow oral representations in “exceptional cases”.

Oral hearings are a fundamental features of the UK legal system and the Courts consider oral hearings to be fundamental to ensure fairness. However, in light of criticism contained in the decision of the Upper Tribunal in Frensham v FCA the industry will lack confidence in the FCA’s ability properly to differentiate between routine, non-routine and exceptional cases. Furthermore, we consider that oral hearings can shortcut, not extend the decision process. At an oral hearing, decision makers are in a position to ask questions, challenge and receive immediate answers. Absent a protracted exchange of responses and counter-responses, this is simply not possible with written submissions.

 

[1] Per Sedley LJ in R Refugee Legal Centre) v Secretary of State for the Home Department [2004] EWCA Civ 1481 [2005] 1 WLR 2219 at [8]

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