Lords committee urges FCA to call off “name and shame” plans

By Ryan Hewlett

Feb 10 - (The Insurer) - An influential House of Lords committee has urged the Financial Conduct Authority (FCA) not to proceed with its plans to “name and shame” firms that are subject to investigations until industry concerns are addressed.

The cross-party House of Lords Financial Services Regulation Committee called the watchdog’s plans to routinely announce enforcement investigations an “abject failure” and hit out at what it described as an “error in judgment”.

Following an inquiry of the FCA’s consultation paper on publicising enforcement investigations, the committee, which was established last year, last week published its first report into the proposals.

The committee concluded that the FCA has “not made a convincing case” for a change to its existing powers, which already allow the regulator to announce an enforcement investigation early in exceptional circumstances.

In February last year the FCA began a consultation on plans to publish updates on investigations as appropriate, which it said would improve the pace and transparency around enforcement cases.

The FCA said it would also disclose when cases have been closed with no enforcement outcome.

But the plans sparked a backlash from policymakers, the financial services sector and industry bodies, including the International Underwriting Association, which argued that naming companies under investigation before assessing all evidence risked damaging consumer confidence in firms and harming London's international standing.

Respondents to the committee’s call for evidence pointed to the lack of evidence provided by the FCA to justify the shift.

The committee said it was concerned at how surprised the FCA was to the reaction its consultation generated and how it demonstrated a disconnect between the FCA’s senior leadership and the sector it regulates.

It noted that firms 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. The committee was also warned about the potential negative impact of the proposals on the FCA’s secondary growth and competitiveness objective.

The FCA in late December mistakenly revealed information about plans to review an insurer when it published a contract notice on its website.

Lord Forsyth of Drumlean, chairman of the House of Lords Financial Services Regulation Committee, said: “It was incumbent on the FCA to make a strong and unequivocal case for why such a fundamental change was needed and it has failed to do that. Its consultation on the changes has been an abject failure and even the FCA chairman acknowledged this has not been the FCA’s 'finest hour'.

“Less than 18 months ago the FCA stated that it recognised that the disclosure of an enforcement investigation could inappropriately damage a firm’s reputation if the investigation did not substantiate the FCA’s concerns. We simply could not understand the FCA’s about-turn in such a short period of time."

He added: “The FCA told us that the average duration of investigations is around three to four years and in 56 percent of cases no further action was taken. If it presses ahead with its proposals on past performance it could mean that half of the firms it investigates, and the people involved in them, will have their reputations unnecessarily and unfairly damaged. This is not acceptable.”