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Review of FCA and PRA enforcement processes: HM Treasury publishes findings and recommendations

In May 2014, HM Treasury announced that it was undertaking a review of the enforcement decision-making processes of the Financial Conduct Authority (the FCA) and the Prudential Regulation Authority (the PRA). The purpose of this review was to consider whether the institutional arrangements and processes that the FCA and the PRA have in place relating to their enforcement processes strike an appropriate balance between fairness, transparency and efficiency.

Final Report

On 18 December 2014, HM Treasury published its final report: “Review of enforcement decision-making at the financial services regulators: final report”, which sets out its findings and recommendations on the FCA’s and the PRA’s enforcement processes. Allen & Overy submitted a response to HM Treasury’s call for evidence in relation to the review. A number of points made in Allen & Overy’s response are addressed in HM Treasury’s final report. Although HM Treasury’s final report indicates that “there seems to be no desire for fundamental reform” of the FCA’s and the PRA’senforcement processes, it does set out a number of recommendations as to how these processes may be improved, including:

  • Subjects of enforcement investigations should be provided with more information about why an FCA or PRA investigation has been commenced and be provided with regular updates thereafter.
  • Preliminary without prejudice settlement meetings before the commencement of Stage 1 of enforcement proceedings are likely to be helpful and should be offered by the FCA and the PRA.
  • The FCA’s Regulatory Decisions Committee should be retained but improved, and there should be greater transparency regarding its composition and efficiency.
  • The PRA should set up an independent decision-making committee to assist with decision-making in contested enforcement cases.
  • The FCA and the PRA should introduce an expedited procedure for subjects of enforcement investigations who wish to refer their cases to the Upper Tribunal without first going through the process of making representations to the FCA or the PRA.

Overall, these recommendations appear to be helpful and are designed to encourage the FCA and the PRA to be more transparent in their enforcement decision-making processes.

What next?

We expect that the FCA and the PRA will consider the recommendations made by HM Treasury in its final report and then publish consultation papers and policy statements setting out how they intend to implement these recommendations in practice during the course of 2015.

In the meantime, the comments made by HM Treasury in its final report may provide firms and individuals who are currently subject to enforcement investigations with some ammunition to supplement their arguments for greater transparency about the allegations that they are facing. In the longer term, HM Treasury’s recommendations indicate that there is a prospect of a more transparent and more consistent approach from both the FCA and the PRA towards enforcement investigations than we see at present.

This will hopefully lead to more efficient FCA and PRA enforcement decision-making processes.

However, the way in which HM Treasury has drafted its recommendations allows the FCA and the PRA a great deal of flexibility in terms of how they implement them. As a result, only when the FCA and the PRA indicate how they will go about implementing HM Treasury’s recommendations will we get a better sense of how helpful they are likely to be in practice.

Please contact us for a copy of our e-bulletin on HM Treasury’s final report that sets out an overview of HM Treasury’s key findings and recommendations, and also includes a more detailed discussion of the recommendations and the impact that they may have in practice, as and when they are implemented by the FCA and the PRA.

Legal and Regulatory Risk Note
United Kingdom