Impact of proposed changes to decision making at the UK Financial Conduct Authority
11 August 2021
Types of FCA decision making affected
There are two key areas where decision-making would change:
- Decisions to issue statutory notices where the FCA is proposing to or has exercised a number of its statutory powers. This would include the FCA’s powers to vary permissions, refuse authorisation for a firm or individual (where contested), or impose requirements on a firm (where contested).
Effectively, it means that decisions to issue these statutory notices would pass to the Division with responsibility for the issue in question, rather than requiring the approval of the RDC. So, for example, a decision to refuse an application for authorisation would be determined within the Authorisations Division, rather than being determined by the RDC following a recommendation by the Authorisation Division.
- Decisions to commence civil or criminal proceedings – for example, seeking an injunction or commencing prosecutions for insider-dealing or breaches of the Money Laundering Regulations 2017.
These decisions would instead be made by the Enforcement Executive Director through the FCA’s Executive Procedures, not the RDC.
There would be no change to any existing right to refer a decision to the Upper Tribunal.
Who becomes the decision-maker?
The intention is to ensure that the RDC will be solely focussed on contentious enforcement cases, and instead empower senior staff within the FCA to take key decisions relating to its supervision and oversight responsibilities.
The FCA can set its own procedures when it comes to issuing various statutory notices under s395 of the Financial Services and Markets Act 2000. However that discretion is not unfettered: the FCA has to ensure that the decision that gives rise to the statutory notice is taken by (or at least includes) a person not directly involved in establishing the evidence on which that decision is based, which is reflected in the FCA’s current Executive Procedures for decision making. These safeguards under the Executive Procedures will also apply to decisions covered by the FCA’s proposals. However, the Consultation Paper highlights some important practical implications of decisions being moved from the RDC to Executive procedures.
Loss of some procedural benefits and safeguards
An affected party is unlikely to be able to make oral representations to the decision maker: while it is not uncommon for the RDC to hear oral representations prior to deciding whether to give a decision notice or second supervisory notice, the Consultation Paper envisages that oral representations will only be heard under Executive Procedures in “exceptional circumstances”, giving the example of where the subject of the notice is not reasonably able to make written representations due to personal circumstances.
Legal advice provided to the decision maker: the RDC has its own, separate legal advisors, who are not involved in advising on the recommendation made by FCA staff to the RDC. This ensures a degree of independence in the advice provided to the RDC. However, under Executive Procedures, the decision maker may be advised by legal advisers who have also advised the FCA staff who are recommending action by the FCA.
Transparency of communications between FCA staff and the decision maker: where the RDC is the decision maker, the RDC will not, after giving a warning notice, meet with or discuss the matter with the FCA staff responsible for the case without other relevant parties being present or otherwise having the opportunity to respond. This limitation does not apply under Executive Procedures.
Accordingly, if the proposals contained in the Consultation Paper are implemented, affected parties will lose some procedural benefits and safeguards that are currently available to them.
Impact of decision making changes on enforcement cases
The changes would not impact most enforcement cases: the RDC would remain the decision maker for cases involving enforcement of the FCA’s Principles for Businesses, Handbook Rules and Code of Conduct where the FCA is seeking a resolution involving a disciplinary sanction (eg financial penalty or prohibition).
However, the Consultation Paper envisages that decisions to commence civil proceedings and criminal prosecutions, which are currently made by the RDC Chair or Deputy Chair (with some exceptions), will be made by the Enforcement Executive Director under Executive Procedures. As the FCA has shown an increased willingness recently to use its criminal prosecutions in market conduct, money laundering and fraud related cases, this change would streamline the decision-making process and make bringing these cases much more straightforward from an internal procedural perspective.
Nikhil Rathi made it clear in a recent speech1 that he intends to ensure that the FCA is a more assertive regulator, with an instinct to test its powers to the limit and act decisively. The FCA has set a quick turnaround time on the consultation: responses are expected by 17 September with the revised Policy Statement to come into force in November 2021.