A Brave New World: Partly Contesting FCA Enforcement Proceedings

“Clowns to the left of me, jokers to the right. Here I am, stuck in the middle with you” - Stealers Wheel, 1972

Until 1 March 2017, people subject to FCA enforcement proceedings faced a binary choice: either settle or contest. That is no longer so. A key change to the FCA’s enforcement process in a recent policy statement has now taken effect: the introduction of partly contested cases. This new option will no doubt be of considerable interest to the regulated community and their legal advisers. 

The FCA acknowledges that it will now need an “opportunity to bed in our partly contested cases process” (policy statement §1.14). So it remains to be seen whether, in practice, it will provide the happy middle course presciently identified by Gerry Rafferty in the above-quoted folk rock classic. This blog post has the modest aim of introducing the key features of the new process and the legal incentives for using it.

New acronym, new opportunity: the focused resolution agreement (FRA)

The FCA Handbook sets out the new option: “[you] may enter into a focused resolution agreement and in this way partly contest the proposed action” (DEPP 5.1.1 G). 

A “focused resolution agreement” is an agreement setting out “an agreed position on one or more, but not all, of the issues relevant to a proposed enforcement action” (Glossary). This is an option for any proposed enforcement action that requires the FCA to issue a warning notice (ibid).

What can be agreed using an FRA?

In principle, any issue “relevant” to proposed enforcement action can be agreed (Glossary). The FCA Handbook provides a non-exhaustive list of examples (DEPP 5.1.8A G):

• Questions of fact.
• Whether specified facts amount to a breach (or more than one breach).
• Whether action for a financial penalty and/or public censure is warranted.
• The appropriate level of a financial penalty.
• Whether action for a suspension, restriction, condition or limitation is warranted.
• The appropriate length of a suspension, restriction, condition or limitation.
• Whether a prohibition order is warranted.
• The appropriate scope of a prohibition order.

Who decides whether I can enter into an FRA?

The FCA Handbook makes clear that “the decision whether to agree a proposed focused resolution agreement is entirely within the discretion of the settlement decision makers” (DEPP 5.1.8D G). So, if you wish to enter into an FRA, this will need to be agreed by these senior FCA staff.

What’s the process?

If you propose an FRA, and the settlement decision makers agree to it, then:

• The settlement decision makers will give a warning notice which “records the agreed position on the agreed issues and the position of the FCA on those issues which remain in dispute” (DEPP 5.1.8C G (3)).
• The Regulatory Decisions Committee (a separate decision-making committee within the FCA) will decide whether to give a decision notice (DEPP 5.1.8C G (6)).

When deciding whether to give a decision notice, the RDC will apply its ordinary procedure subject to the following main changes:

• “If the warning notice was given on the basis of a focused resolution agreement, the recipient will be required to limit their representations to the issues that remain in dispute” (DEPP 3.2.18 G).
• “Where a warning notice is given on the basis of a focused resolution agreement, the RDC shall accept and not in any circumstances depart from the agreed position on the issues set out in that agreement” (DEPP 3.2.11A G).     

The FCA may make it a term of the FRA that, if you ultimately refer the matter to the Upper Tribunal, you promise not to dispute the agreed issues before the Tribunal “except where the Tribunal decides of its own motion to reopen an issue or issues” (DEPP 5.1.8B G (3)(b)(ii)).

What about the settlement discount?

For all settlement agreements reached after 1 March 2017, discounts are only available at Stage 1 (DEPP 6.7.3 G (3)-(4)). This applies equally to FRAs.

What level of discount is available if you enter into an FRA at Stage 1? That depends on exactly how much you agree (DEPP 6.7.3A G (1)-(3)):

• If you agree all facts and all breaches (i.e. penalty is the only outstanding issue) then the discount is a guaranteed 30%. This is the same as for a full settlement. 
• If you agree all facts (but not all breaches) then the discount will be between 15-30%.
• If you reach some other FRA of more limited scope, then the discount will be between 0-30%.

In short, except in penalty-only contests, there is an element of discretion. That discretion will normally be exercised by the RDC (DEPP 6.7.3B G). The factors that the RDC may take into account include the following (DEPP 6.7.3C G):

• “the extent to which the position taken by the person subject to enforcement action on the disputed issues at the time the focused resolution agreement is entered into is reflected in the terms of the decision notice”.
• “any saving of time or public resources as a result of the focused resolution agreement.”

So, while Stage 2 and 3 discounts are no more, there is now the new option at Stage 1 of entering into a focused resolution agreement and still obtaining some level of discount.

Ajay Ratan

(This author was on secondment to FCA Enforcement during the consultation stage of the partly contested case process and was involved in drafting the relevant Handbook provisions at that stage. The above is intended as a neutral descriptive summary. Any views inadvertently expressed are the author’s own.)

This article was first published on Enforcd on Monday 27 March 2017.