The Financial Conduct Authority (FCA) has published its policy statement on ‘Publishing Information about Enforcement Warning Notices’; aimed at advancing its consumer protection and integrity objectives.
The FCA is now able to publish a statement detailing the warning notice issued to a firm and/or individual under review by virtue of an amendment to s391(1)(c) of the Financial Services and Markets Act 2000 (FSMA). The new power will apply to the disciplinary outcomes listed under s391(1ZB) FSMA, where, for example, the FCA intends to censure, fine or suspend an individual or firm. Previously the publication would only occur after a decision notice or a final notice was issued.
The FCA must satisfy itself that publishing the notice is appropriate to enable consumers, firms and the market to understand its concerns. The FCA believes confidence in the FCA and the regulatory system will be enhanced by taking action at an earlier stage, and the openness of the enforcement process will be in the public interest. Significantly, the policy has aligned the stage at which publicity is given in regulatory cases with the stage at which publicity is given in civil and criminal cases.
In deciding whether to publish, the FCA will firstly consider whether it is appropriate to do so to provide consumers with an understanding of the FCA’s concerns. Generally the FCA expects this will be the case. Secondly, the FCA will consider whether or not it is appropriate to identify the subject of the warning notice. Generally the FCA expects it will be appropriate to identify a firm but not always an individual. With regards to identifying an individual, the FCA acknowledges that the potential harm to an individual may outweigh the benefits of early transparency. However, the FCA believes it is appropriate to identify the individual where it considers:
- It is not possible to describe the nature of its concerns without making it possible to identify the individual;
- It is necessary to avoid other individuals being mistakenly believed to be the individual in breach;
- It would help protect consumers or investors;
- It is necessary to maintain public confidence in the financial system or market; or
- It is desirable to quash rumours in the market.
Having made the decision to publish, the FCA will consult with the firm or individual under review and then consider whether any of the grounds under s391(6) FSMA apply which would prohibit the publication; namely unfairness to the individual or firm, prejudicial to the interests of consumers or detrimental to the stability of the UK financial system.
To avoid publication on the ground of unfairness, the firm or individual must provide clear and convincing evidence, within 14 days, of how the unfairness may arise and how they could suffer disproportionate damage. They must also show publication would have a material effect on them through a significant loss of income or the infliction of a disproportionate level of damage, such as deteriorating health, bankruptcy or insolvency. In assessing unfairness, the FCA will take into account the extent to which the firm or individual has been made aware of the case against them during the investigation. For damage to reputation to succeed, the FCA must be supplied with evidence of the consequential harm caused. The FCA has made it clear that arguments of the merits of a warning notice will not be material to publication decisions and that generally it will be more difficult for a firm to establish unfairness, particularly larger firms.
If publication is still appropriate after hearing representations, the information will be published in a Warning Notice Statement (Statement), examples of which can be found in the original consultation paper. Where the FCA has decided not to identify the person, the Statement will not include the person’s name or any information which could lead to their identification. The Statement will make is clear that the warning notice is not the FCA’s final decision on the matter. In situations where the FCA refrains from taking further action, it will publish a notice of discontinuance on its website with a link to the original Statement.
