| Link(s): | Lords report concludes that naming and shaming is not the way to regulate – UK Parliament Naming and shaming: how not to regulate |
Context
The House of Lords Financial Services Regulation Committee, which was reappointed by the House of Lords on Monday 29 July 2024, following the State Opening of Parliament on Wednesday 17 July, has published its report on the FCA’s plans to publish details of enforcement investigations early (see the FCA’s Consultation Papers CP24/2 and CP24/2 Part 2). The report is titled “Naming and shaming: how not to regulate”.
The details of the Committee’s inquiry and links to relevant transcripts and submissions can be found here. UKGI Learning Solutions Insights team has also published a summary of the report. The title indicates the nature of the findings of the inquiry, and perhaps adds to the less than favourable recent Parliamentary scrutiny of the FCA.
Key points to note and next actions
- The report’s summary of conclusions and recommendations is set out over 24 separate paragraphs, commentary split between the enforcement proposals themselves and proposed next steps.
- The pressure on the FCA in this regard has increased following recent Government pressure on the FCA to ensure ‘international competitiveness and growth’, with the report stating that “We remain unconvinced that the FCA has adequately demonstrated how the proposals contained in CP24/2 Part 2 align with its secondary international competitiveness and growth objective.”
- Whilst the FCA already has the power to name firms under investigation in ‘exceptional circumstances’, in February last year, the regulator announced plans (in CP24/2) to shift to a ‘public interest test’ which would allow it greater discretion when choosing to publicly name firms.
- The FCA’s consultation prompted an immediate and widespread backlash from across the financial services sector and from legal firms, and even drew criticism from the previous Chancellor of the Exchequer. The Committee was concerned at how surprised the FCA was to the reaction its consultation generated and how it perhaps demonstrated a disconnect between the FCA’s senior leadership and the sector it regulated.
- Witnesses were worried that the UK was at risk of becoming an international outlier, as no other jurisdiction routinely publicises investigations in the way the FCA is proposing.
- Despite being asked to carry out and publish a cost benefit analysis (CBA), the FCA has thus far refused to do so on the basis that it only does CBAs for rules and guidance on rules. The Committee recommends that the FCA changes this policy and practice.