Changes to decision making at the UK FCA: enforcement action
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Despite concerns being raised through the consultation process, the Financial Conduct Authority (FCA) has implemented its proposals to shift some decision making from the Regulatory Decisions Committee (RDC) to senior FCA staff. In this two-part blog, we consider what this means for individuals and firms who find themselves subject to FCA scrutiny in a number of different contexts.
The FCA has transferred decision making from the RDC to senior FCA staff (Executive Decision Makers) for: certain authorisations, interventions and straightforward cancellation cases; as well as decisions on whether to commence criminal or civil proceedings.
Decisions taken by an Executive Decision Maker will either be made: by an individual of at least Director level (including acting Directors); or at least two members of senior FCA staff. Contested enforcement cases will continue to be heard by the RDC.
The FCA will conduct a 6 moth post-implementation review to assess the effectiveness of the changes.
Whilst the RDC is not wholly independent of the FCA, its structural separation gives some assurance to firms that those responsible for taking decisions with the potential to end a business or career are not also involved in evidence gathering. The FCA confirms that this separation will remain. Executive Decision Makers will be experienced members of FCA staff and will usually be from the industry area where the decision is to be made. They will also be separate from the gathering of evidence upon which the decision is based.
Concerns have been raised about the reduced independence of FCA lawyers advising Executive Decision Makers. The RDC is advised by its own legal advisers, separate to the FCA’s Enforcement Legal team and the Office of the General Counsel. The FCA accepts that when decisions are taken by Executive Decision Makers, the same lawyers might advise the investigating team and the decision maker. However, it says that lawyers acting in this capacity will be “overseen separately” to ensure they discharge their professional obligations and provide objective and balanced legal advice.
Disclosure of information is usually more restricted when decisions are taken by Executive Decision Makers. The FCA does not intend to amend this but it has clarified that subjects of a decision will receive a clear notice setting out the reasons for the decision and the facts and matters supporting that decision, as well as the material on which the decision was based, so that they can assess whether they want to make representations or appeal the decision.
Challenging decisions and making representations
Recipients of a decision made by Executive Decision Makers continue to be able to make representations to the decision maker. However, in most cases these will now be written, rather than oral. Oral representations will be permitted where fairness demands it, but this is expected to be confined to cases where a firm or individual is unable to make written representations or oral representations are required due to the urgency or complexity of the matter to be decided.
The predominant concern raised in relation to this change is the effect this might have on the perception of fairness of process and on the ability of firms and individuals to make effective representations. Oral representations can provide assurance that a firm’s or individual’s points have been taken into account by the FCA decision maker.
On this point, the FCA considers the benefit of oral representations perceived by firms and individuals is outweighed by the negative impact these have on the speed and efficiency of FCA decision making. This change is expected to be more significant for smaller firms and individuals, who do not have the opportunity to engage in regular dialogue with a dedicated supervisor.
Individuals and firms can still refer a decision to the Upper Tribunal, who will hear the case afresh. However, the cost of doing so may reduce the opportunity for challenge by individuals and smaller firms.
Impact on enforcement cases
Contested enforcement cases will still go to the RDC, meaning that the RDC remains the decision maker in cases where the FCA proposes some form of civil sanction (eg penalty or a prohibition). Consequently, the impact of these changes on most civil enforcement investigations is expected to be minimal.
However, to the extent that the FCA takes decisions to launch civil or criminal proceedings in the context of enforcement investigations (eg injunctions in market abuse cases, or decisions to prosecute under the Money Laundering Regulations), these decisions will be taken by Executive Decision Makers instead of the RDC.
The broader context - FCA Transformation
These changes should be seen as part of the FCA’s ambition to become more innovative, assertive and adaptive, as outlined by CEO Nikhil Rathi earlier this year. In part two of this blog, we consider the wider implications for firms, who might start to see their activities restricted in new ways.