This article considers five commonly asked questions about the FCA’s investigation and enforcement process and provides an overview of what to expect. It focuses on actions taken by the FCA, although similar issues may arise in actions taken by the PRA.
1. My firm has been referred to enforcement – Are we going to be fined?
Short answer: Not necessarily.
Long answer: At various points during an investigation process, the FCA could decide to discontinue the investigation (for example, if it considers there is insufficient evidence). Otherwise, (and much more likely) the FCA has a wide range of disciplinary sanctions available to deploy. As alternatives (or in addition) to fines, sanctions can include, for example: private warnings, public censures, and/or variation, cancellation, suspension or restriction of a firm’s regulatory permissions.
2. What happens next?
Short answer: The firm is placed into the investigation process, which involves a number of key stages.
Long answer: The typical life cycle of an investigation includes the following stages:
Referral to enforcement – matters are usually referred by the FCA’s Supervision function to its Enforcement and Marketing Oversight Division to investigate.
Appointment of investigators – firms will typically receive a Notice of Investigation confirming that an investigation has been opened.
Scoping discussions – these initial discussions may include: an indication of why investigators have been appointed, the FCA’s current view on the scope of the investigation, an indication of next steps and timings, and the FCA’s thoughts on individuals to interview and documents to request. Scoping meetings are often more of a formality, but they can be useful to gain an understanding of the FCA’s focus and concerns, and they also provide an opportunity for the firm to set the tone and demonstrate early cooperation.
Documents and Interviews - the FCA will make requests for documents or information and will undertake interviews with those under investigation and witnesses.
Preliminary investigation report - after completing the initial investigation stage, the FCA will typically send a preliminary findings letter to the firm, which will usually include a preliminary investigation report, on which the firm will be given the opportunity to provide comments.
Options - at this point, the firm can: (A) seek an early resolution through settlement negotiations; (B) refer the matter to the FCA’s Regulatory Decisions Committee (RDC), which is a committee of the board of the FCA (and is independent of the enforcement function); or (C) request that the procedure is expedited and refer the matter directly to the Upper Tribunal for a full hearing. If the firm refers the matter to the RDC and then wishes to challenge the RDC’s decision, it can also refer the matter to the Upper Tribunal at that stage.
3. How long will it take?
Short answer: From beginning to end (and assuming early settlement) the process can take many months, if not years, to complete.
Long answer: Once an investigation process is commenced, it can be difficult to circumvent. While senior individuals at the FCA have at points expressed their desire for the FCA to close investigations early where initial evidence justifies doing so, in practice this rarely happens. More often, the FCA will need to complete its initial investigation so that it can gain enough evidence to understand the nature and scope of the misconduct before it can decide on appropriate action.
4. What about the firm’s senior managers?
Short answer: The FCA will also consider whether to take action against the firm’s senior managers (and potentially other individuals).
Long answer: Where the FCA considers that senior managers have failed to meet its standards, it will, where considered appropriate, bring cases against individuals as well as, or instead of, firms. While the FCA recognises that cases against individuals can be very different in their nature from actions against firms (in particular, individuals generally face greater risks from enforcement actions in terms of the impact on their livelihoods, reputations and financial positions), its view is that actions against individuals send an important message to the market and so will be brought where considered appropriate.
5. Will we have a right of appeal?
Short Answer: You can refer the matter to the Upper Tribunal and beyond that, if permission is granted, to the Court of Appeal.
Long answer: As set out above, firms are able to refer the FCA’s (or the RDC’s) decision to the Upper Tribunal. This process involves a much more adversarial procedure with statements of case, disclosure of documents, witness statements, and a full hearing. If still dissatisfied, a firm can seek permission to appeal to the Court of Appeal.
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