On 26 October 2016, the FCA launched a wide-ranging consultation into its "mission". It said that this was with a view to formulating a guiding set of principles around its strategic choices, such as those made in relation to resourcing priorities. Many areas addressed by the consultation did not specifically invite responses.
In early January 2017, the FCA published a summary of just some of the initial feedback to the consultation. The consultation period has since closed (on 26 January) and further publications are expected from the FCA in due course, fully summarising the responses and its proposed next steps.
In this article, we summarise some aspects of the consultation and preliminary feedback likely to be of interest to readers of Enforcement Watch.
FCA Approach to Enforcement
One core aspect of the consultation relates to the FCA's approach to Enforcement. In particular, the FCA wants to ensure that the Enforcement process and any resulting sanctions send appropriate messages both to the market and the public at large. In this context, it notes:
- That investigations should draw "clear bright lines" that the rest of the market can follow.
- That the enforcement process is a forensic one that does not imply that any decision has yet been taken. It therefore suggests that the term "enforcement" may be unhelpful in terms of the type of interaction that firms subject to enforcement might expect to have with the FCA. It suggests that a more neutral term such as "referral for investigation" may be more appropriate.
- That the public should be clear that sanctions are the consequence of a fair process and that resolutions reached by agreement are fair and proportionate to the wrong-doing.
Additionally in this context, on two aspects that it is specifically consulting on, it also notes:
- That investigations (whether or not resulting in any action being taken) generate knowledge and "lessons learned" for both the FCA and the subject. It suggests that this intelligence should be properly captured through formal discussions after the matter has concluded.
- That it will review its use of private warnings in light of its desire for greater transparency and clear messages to the market about what conduct is not acceptable.
Preliminary feedback from firms was that they would welcome the FCA being more active in harvesting and sharing lessons learned and good practice. In this regard, respondents urged the FCA to communicate messages to specific markets to address particular risks (rather than more generic communications).
It will be interesting to see whether the FCA moves away from its use of "private warnings". Inevitably, subjects of investigations are far more likely to fight a case if there is no prospect of settling for a low-level private warning. This in turn may affect the number of contested cases (see elsewhere in this issue for a discussion of increasing contested cases SMR shows we are not going soft, says head of FCA Enforcement).
Duty of Care
The FCA asks whether prescribing a duty of care owed by firms to retail clients would better define the situations in which such clients have to take responsibilities for the investment decisions they have made and the situations in which they may be able to bring a claim against a firm. Such a duty would (unlike the FCA's Principles for Businesses) be directly actionable and therefore (as the FCA notes), such a change would likely bring about an increase in litigation including class actions. Whilst the FCA does consult on the point, it notes that it does not favour the introduction of a Duty of Care. No preliminary feedback has yet been made available on this, but it is not difficult to see that firms may well not be in favour of it.
The FCA notes that it intends to fully explore "data science" options to analyse the data that it already receives in order to tackle misconduct such as market abuse, money laundering and insider dealing. This was not specifically consulted on. It seems to us that the sophistication of financial markets and those who work in them, driven by the pace of technological change and volume of data, makes the deployment of such tools an obvious step for the FCA.