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FCA and PRA Publish Joint Statement on Enforcement

FCA and PRA Publish Joint Statement on Enforcement

As we covered in Enforcement Watch 19 "Joint FCA/PRA Consultation on Enforcement", the FCA and PRA last year published a joint consultation on reforming certain aspects of the enforcement process. 

We summarise below both how these proposals have been received by respondents and what the adopted policy is (published on 1 February 2017).  We have focussed only on those final policy rules likely to be of particular relevance to those interested in enforcement.  Unless expressly noted, both Regulators have adopted these reforms.  

Many of the new reforms bring about relatively minor, but sensible, reforms to the familiar enforcement process.  Examples of these reforms of particular relevance to enforcement watchers, include:

  • providing with the Memorandum of Appointment of Investigators (MOA) a summary of the potential breaches, an explanation of the matters said to give rise to the breaches and an explanation of the criteria used to refer to Enforcement;
  • scoping meetings will usually only take place where the regulator can share meaningful information about the direction of travel and timing of the investigation. The exception will be where the subject of an MOA is an individual, inexperienced in the Enforcement process. (Both regulators will consider in a different policy consultation process whether it would be desirable to expressly incentivise admissions and settlement as early as the Scoping Meeting phase.);
  • the regulatory department referring the matter to the FCA, such as Supervision, will retain periodic structured involvement in the investigation, in order to assist those in Enforcement understand the firm, products and market;
  • there will be periodic updates to the subjects of investigations, at least quarterly, as to steps taken and likely next steps;
  • the FCA will publish factors that it will take into account when considering whether to grant an extension of time for a response to a Preliminary Investigation Report (PIR) or Warning Notice.  The PRA will consult on this separately.  The FCA will consider separately whether to give guidance on the circumstances in which it will give a PIR; and
  • the FCA will give a period of 28 days' notice before the start of the "stage 1" settlement discount period will be given, to allow subjects of an MOA the maximum opportunity for early settlement. This will be supplemented by providing key evidence and findings and in some cases offering a "without prejudice meeting".  We discuss below the abolition of stages 2 and 3. 

However, the most significant reforms addressed by the consultation were: (i) the introduction of partly contested cases (with so called "focussed resolution agreements"); (ii) reform to the three settlement stages; and (iii) a leap-frog procedure to allow cases to proceed directly to the Upper Tribunal without first passing through the FCA's Regulatory Decisions Committee (RDC).   We briefly consider the FCA's approach to each. 

The FCA has adopted partly contested cases, meaning that a case can proceed to the RDC either on penalty only or on certain limited issues.  The view of the FCA and most respondents was this would help ensure that cases were run as efficiently as possible. However, there is plainly scope for problems to arise with this and (as the FCA notes) the use of "focussed resolution agreements" would be potentially problematic in multi-party cases, where the subjects have different areas they wish to agree or dispute.  The FCA has also clarified that in most cases it will not publish a Warning Notice statement in respect of facts agreed in a "focussed resolution agreement".  The adoption of partly adopted cases is a bold procedural move for the FCA and it remains to be seen whether the new regime will have the effect of stream-lining cases and whether more cases will go to the RDC as a result.

The FCA has elected to abolish discounts for settlement at stages 2 and 3. Instead, after stage 1 is completed with no settlement or "focussed resolution agreement", there will be a discretionary settlement discount in "appropriate cases".   This will no doubt increase the significance of stage 1 and gels with the reforms discussed above to more clearly sign-post the start of this period.  The idea behind this reform was to more clearly demarcate cases that can be settled and those that must be contested.  As the FCA notes the RDC process is such that settlement on the "steps of the Court" involves considerable wasted cost on its part.  It remains to be seen whether the discretion is wide enough to take into account changes in personal circumstances and new facts and evidence coming to light that may, after stage 1, radically alter perceptions about the matter.

The FCA has elected to allow certain cases to proceed directly to the Upper Tribunal, that is "leap-frogging" the RDC.  In such cases a Warning Notice would be changed into a Decision Notice on the same terms, with the matter being the subject of a reference to the Upper Tribunal.  It is easy to see that for some cases, especially fact heavy matters involving witnesses and experts, this route may be a preferred option.  That said, there is no proposal to change the current costs regime, where an adverse decision in the Upper Tribunal can (unlike at the RDC) result in an adverse costs decision.