City lawyers have launched a broadside on the Financial Conduct Authority (FCA) today for what they call “sinister” plans to change enforcement rules that could unfairly damage the reputation of firms.
In a consultation paper yesterday, the City watchdog set out a new approach to “public interest” that will name firms under investigation in a bid to strengthen deterrence and encourage witnesses and whistleblowers to come forward.
The move comes amid a wider push to improve the pace and transparency of its investigations and marks a step change from the current approach, in which probes are rarely disclosed to the public.
However, the plans have been met with backlash from some lawyers who claim firms could be “named and shamed” by the regulator before they are found to have committed any wrongdoing.
“The proposed new approach has the potential to do enormous reputational damage to firms which may have done nothing wrong. Once ‘named and shamed’ many firms will never recover,” said James Alleyne, Legal Director in the Financial Services Regulatory team at Kingsley Napley.
“A case may be quietly dropped and the FCA may move on but the damage to the firm, its employees and customers could be profound.”
William Garner, a partner at law firm Charles Russell Speechlys, described the plans as a “worrying and somewhat sinister development”.
“We have recently been concerned about instances of “trial by media” in the financial services sector and the sometimes very close relationship between the FCA and the press,” he added.
The FCA’s two co-heads of enforcement Therese Chambers and Steve Smart have looked to beef up enforcement action since starting in the role last June after a slide in enforcement action by the watchdog in recent years.
Just eight fines were issued last year, the lowest in the FCA’s decade long history.
Simon Morris, a partner at law firm CMS said the proposal seemed “more about trumpeting its work than giving out useful information”.
The watchdog defended the move today however, saying it will still take a “case-by-case approach on whether to name firms under investigation”.
“We are proposing to change our policy on investigation publicity because we consider that there are circumstances in which it will be in the public interest for consumers, investors, legislators and others, including the industry itself, to be made aware who and what we are investigating,” a spokesperson said.