FCA publishes new referral criteria for enforcement investigations

Posted on 30 September 2015

FCA publishes new referral criteria for enforcement investigations

In December 2014, HM Treasury published a review of the enforcement decision-making process at the FCA and the PRA (see Enforcement Watch 15 "Treasury publishes report on its review of enforcement decision-making").  A consistent theme of the report was the need for greater transparency.  One recommendation was that referral criteria should be published which explicitly consider whether an enforcement investigation, rather than another regulatory response, is the right course of action.  On 10 July 2015, the FCA published its updated referral criteria in response to this.

The criteria set out three aspects that the FCA considers in order to assist it to answer the question whether an enforcement investigation is likely to further its aims and statutory objectives.  These are:

  • The strength of the evidence and the proportionality and impact of opening an investigation;
  • What purpose or goal would be served if the FCA were to end up taking enforcement action in the case; and
  • Relevant factors to assess whether the purposes of enforcement action are likely to be met.

Each of these three is then broken down and relevant considerations are identified.  Much of this is fairly bland and obvious, but nonetheless some aspects make interesting reading.  For example:

  • As we know, resources are limited and a fair deal of what comes through the criteria is about picking the right cases, no doubt partly as a result of that.
  • Whilst the FCA's enforcement activity is clearly to a significant extent about sending a message, the FCA sends a number of messages in the criteria it chooses to list.  For example, one consideration in the "justice" factor is whether the firm or individual failed to bring the actions or potential breaches to the attention of the FCA.
  • In the "general deterrent" factor, one aspect is whether the suspected misconduct suggests poor culture and governance such as firms who do the minimum to fix specific problems but do not address the root causes.
  • Proportionality is said to be an issue, not only in terms of the resources required to investigate, but also the impact that opening an investigation might have, especially where the subject is an individual.

Firms and practitioners will want to make sure that they are familiar with the referral criteria.  What may be really interesting is the extent to which any person looking to judicially review the bringing of an investigation in future might find these criteria useful in helping to bring a case.

You can review the FCA's Enforcement Referral Criteria here.


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