PIMFA, the wealth and investment management trade body, has raised “serious concerns” about the FCA’s proposals to make public enforcement investigations against regulated firms.
The plans could cause serious harm to firms, particularly small ones, PIMFA warned.
This week the FCA announced it would consult on speeding up enforcement cases in an effort to increase the deterrent impact of its actions and improve public confidence in the regulator as an enforcer.
It plans to focus on a streamlined portfolio of cases where it can deliver the greatest impact and also committed to more quickly closing cases where no clear outcome is achievable.
Details have been published in a new Consultation Paper: CP24/2 - 'Our Enforcement Guide and publicising enforcement investigations - a new approach.' Under the plans the FCA will publish updates on ongoing investigations and be open about when cases have been closed with no enforcement outcome.
The moves are a change to the current process where current investigations are only announced in very limited circumstances.
PIMFA said it was not clear how ‘public announcements’ of potential enforcement action would produce a benefit.
‘Naming and shaming’ firms may not halt rogue firms from harming consumers, it added.
In addition, the naming of firms under investigation, particularly small firms, could lead to a catastrophic loss of confidence in the firms and rapid outflows of funds, PIMFA cautioned.
Alexandra Roberts, head of regulatory policy and compliance, said: “It is not immediately clear to us how public announcements of potential enforcement action will support the FCA’s approach to supervision and enforcement – it seems unlikely to us that being ‘named and shamed’ publicly would be the primary deterrent for a firm committed to introducing harm into the market.
“More broadly, very real consideration needs to be given to what the potential impact will be on firms that are publicly subject to enforcement action. These announcements will lead to significant outflows for small firms in particular, rendering their businesses hollow shells of what they were previously, whilst larger listed firms will almost certainly be subject to significant shareholder volatility.
“The FCA’s caveat that an investigation does not automatically mean that there has been misconduct, or breaches of their requirements, simply will not register with the wider public and the market. If the FCA is committed to doing this – and we would urge them to really consider if they should – they need to give very real consideration to where the bar for a public announcement is set and who really benefits from a public announcement.”