Posted: 18th November 2013
Another of the FCA’s new powers has arrived. On 15 October 2013, the FCA published a policy statement about its new ability to publish warning notices about firms. A warning notice is information about proposed, not actual, enforcement action. Previously only decision notices and final notices have been published.
In the main, the warning notice will identify the firm or individual involved. Publishing warning notices is another reminder that the FCA is a more proactive, forward looking regulator which acts to prevent detriment to customers rather than bring enforcement after the horse has bolted.
The individual accountability outlined in the new policy statement has parallels with the government’s amendments to the Banking Reform Bill also proposed this month. In the proposals, those within the newly proposed Senior Persons’ Regime who make decisions, for example, which lead to a bank’s collapse or who fail to stop others doing so, could face a seven year jail term.
In publishing these notices the FCA seeks to make clear to firms and customers the sort of behaviours it considers unacceptable, naming firms and individuals when necessary. However, the FCA has also set itself high standards about what and when it is acceptable to publish in those notices. Following responses by firms to the FCA’s initial consultation paper the threshold for proving unfairness of publication has been lowered.
Protection for individuals
As a consequence of listening to firms’ responses in the consultation process, the regulator is less likely to name an individual than a firm. It will only do this where it considers the benefits of early transparency will outweigh the potential harm caused to an individual i.e. impact on health and disproportionate loss of earnings. However, where the regulator considers it is appropriate to publish the warning notice with or without identifying its subject, it will consult the persons to whom the notice is given. It will then consider whether any of the grounds set out in section 391(6) of the Financial Services and Markets Act 2000 Act prohibiting publication apply.
Even if the FCA eventually drops the proposed action – which it has done in only three of 87 cases since 2010 – the initial warning notice continues to show the market that the FCA is watching that firm. Whilst the issues which invoke warning notices will be firm specific, firms can be sure that being able to measure and evidence good outcomes for customers is a great starting point. Giving the regulator assurance that your culture – your firm’s ethics – and business model are supporting good customer outcomes means that warning notices are unlikely to be landing on your doorstep in a regulatory letter or on the front page of the newspaper.
This move by the FCA aims at increasing transparency and encouraging change in the industry. This is another example of the regulator’s preventative intentions that publishing such notices “helps maximise the deterrent effect of enforcement action.” As firms and the FCA settle in to this new approach, we will see case by case what is deemed acceptable on either side.