Tuesday 18 April 2017 was a big day. Perhaps somewhat overshadowed by the PM’s announcement that there would be a General Election, 18 April was also the day the FCA published ‘Our Mission for 2017’ and ‘Business Plan 2017/2018’. Here, I consider some of the more notable aspects of The Mission document.
The majority of the Mission document will be of no, or little, surprise to practitioners. In the document, the FCA explains, in some detail, how it seeks to add public value through enhancing trust in the financial markets, improving how markets operate, establishing a common regulatory approach across industry firms, working to prevent harm and helping to put things right when things go wrong. Interesting but not ground-breaking.
What is likely to be more significant to practitioners is the detailed precis of the FCA’s decision-making framework and the tone that is used throughout when discussing the FCA’s use of Enforcement powers and Enforcement investigations.
In Chapter 3, ‘How we make regulatory decisions’, the FCA explains that its aim is to use its regulatory tools efficiently and cost-effectively so as to deliver the greatest public value. The FCA says that to do this it has adopted a four-stage decision-making framework:
(1) identify the harm or potential harm;
(2) consider the use of diagnostic tools;
(3) consider the use of tools to remedy any harm; and
(4) evaluate the outcome.
The aim of this framework is to ensure consistent regulatory judgements whilst increasing transparency in the decision-making process. All very commendable.
While there is little of surprise so far, it is the attitude to Enforcement that is notable.
In the Mission, the FCA explains that its diagnostic tools include the power to commence investigations. However, the authors of the Mission decided to expressly state that the mere fact of an investigation does not presuppose guilt:
“When we open an investigation, we have not concluded that there have been breaches. Rather, we investigate the evidence and then form a view about whether there has been misconduct.”
This message is not stated once; it is repeated throughout the document. For example, later in the same document:
“Starting an enforcement investigation is a diagnostic tool and does not mean a sanction is inevitable or even likely. We do not pre-judge outcomes …” and
“As this Mission explains, when we refer a firm or regulated individual for investigation this does not mean we have decided that wrong-doing has taken place.”
The tone is clear and deliberate. It is in stark contrast to the failings identified in Andrew Green QC’s November 2015 report into the FSA’s enforcement actions following the failure of HBOS. In that report, Mr Green referred to the excessive weight the FSA had placed on the perceived prospects of success at an early stage in the Enforcement process. He even quoted an Enforcement manager as saying in interview that before commencing an investigation, Enforcement would “satisfy ourselves that we have a reasonable prospect of succeeding and getting a good result from an investigation” and “we take on cases that we think have a good chance of winning”. The Mission document is further evidence of an intention to ensure that that attitude and approach to Enforcement is no more.
The Mission also promises the future publication of a document entitled ‘Approach to Enforcement’. For those wishing to spot further trends in Enforcement this will undoubtedly be a key document to look out for. A Feedback Statement published alongside the Mission indicates that an area which is under careful consideration is the appropriateness of private warnings, with the FCA warning:
"Our Mission 2017 emphasises our commitment to the principle that we should exercise our functions as transparently as possible. It is important that we provide appropriate information about our regulatory decisions and that we are open and accessible, both with the firms we regulate and the general public…"
We can therefore expect clarity as to the approach the FCA will take to private warnings soon.
Finally, the Mission contains a commitment to carry out a review of the FCA’s Handbook. The FCA says that it has concerns that the number and complexity of its rules makes the Handbook hard to follow – the FCA worries that firms cannot clearly interpret its expectations and it considers that the Handbook may act as a barrier to new firms. No doubt, the offer of a review of the Handbook is manna from heaven both for clients and practitioners alike. However, there is a very familiar road-block in the way – Brexit. The FCA fairly and candidly notes that work “cannot begin … until the outcome on EU withdrawal is clear”. As such, it seems likely that we must wait some time before this review will commence.
This article was first published by Enforcd on 28 April 2017.