The UK's Financial Conduct Authority (FCA) has long attracted much comment and criticism on its approach to investigating fraud and misconduct within the financial services industry. There is a long history of the UK having a soft touch on white collar crime of this type. The FCA is seeking to change this and launched a consultation on 27 February 2024, say Wedlake Bell's partner Frances Coulson and paralegal Laura Brookes.

The consultation seeks input regarding increasing the publication of enforcement investigations, as well as other proposed changes to the FCA Enforcement guide, with a view to "increasing transparency about [the FCA's] enforcement work and its deterrent effect, and to disseminate best practice".

On the consultation's webpage, the FCA state that the current lack of transparency and very limited publishing of investigations has lead to "public concern about whether we are taking appropriate action" and has reduced "the educational and deterrent effect of our enforcement" .

In a speech given on 27 February 2024 to The Market Abuse and Market Manipulation Summit, Therese Chambers, the joint executive director of enforcement and market oversight at the FCA explained that the proposals were aimed at increasing transparency in order to deliver "impactful deterrence" within the industry and to also improve public accountability of the FCA's own actions.

Chambers intends that the new proposed strategy will achieve some of what she describes at the "many strategic aims" of the FCA's approach to enforcement:
(1) protecting customers and markets
(2) reducing and preventing serious harm
(3) setting higher standards
(4) providing the ultimate deterrent to would-be wrongdoers
(5) keeping the markets clean to help drive maximum growth and international competitiveness.

It is clear that the FCA views the new commitment to transparency and openness as a way to enhance the impact of their enforcement operations, as well as encourage financial growth. It can only be welcomed that the FCA wishes to be an active participant in the delivery of growth which is beneficial to the UK economy.

However, the industry's reception to the proposed changes has been overwhelmingly negative. Government insiders have said that the plan could harm the competitiveness of the UK as a financial centre due to worries about the damage to reputation which could result from the disclosure of an investigation.

Those worries are perhaps well-founded; Steve Smart, the Co-Head of Enforcement at the FCA, has stated that 65% of investigations are closed without any action or finding of wrongdoing and so many firms could be faced with reputational damage without any proven justification. Jeremy Hunt, the Chancellor for the Exchequer, has also expressed his disapproval of the proposal, telling the Financial Times that he "hoped the FCA would re-look at their decision".

Hunt's comments are made against the backdrop of the current Conservative drive to stimulate the UK's financial markets by seeking to encourage investment.

Why has the UK found the enforcement of criminal law against those who abuse its financial markets so difficult over so many decades? The answer is complex, but goes to the heart of the tension between growth, regulation and the power of government and enforcement bodies against the power of the engines of the economy.

To avoid the accusations of 'naming and shaming' firms before any wrongdoing has been established, the FCA could initially just "shame", with no "name"; disclosure of the investigation and the suspected wrongdoing, without disclosure of specific details or the name of the firm under investigation, could go some way to achieving the FCA's aims of transparency, accountability, and deterrence, whilst mitigating the reputation risks felt by fund managers and other players in the industry.

A compromised approach may well weaken the intended effect of the disclosures, but could provide a sensible middle-ground. Whilst the need for market stimulation and economic growth is of course understood, it cannot come at the cost of turning a blind eye to illegality and wrong doing, and the FCA is right to attempt to bolster its' approach to enforcement.

There will always be a moment for proper public scrutiny, but might delaying this improve the quality of investigation?
The FCA's enforcement regime has long been subject to criticisms of being unfit-for-purpose; in 2023, the FCA issued just eight fines, the lowest since the Authority was created a decade earlier , and achieved only one insider trading conviction in four years.

Query other moves which could improve protection of the public. In many investment frauds for example there may be one entity which is FCA authorised, which promotes the investment brochure for a fund (however structured and promoted).

However, there may be many people and entities surrounding the offering who are not authorised and are in fact fraudulent. The involvement of any FCA authorised entity amidst a host of unregulated and potentially fraudulent players can mislead investors (particularly at the retail level), who see the FCA badging and enquire no further. Abusive product promoters such as boiler room sales persons may term themselves "IFAs" whilst not being so.

Vulnerable investors, in particular, may accept what they are told at face value. The whole point of an independent adviser is that the adviser should scan the whole market, not promote specific products. Whilst financial advisers in the UK must either be authorised or exempt under the Financial Services and Markets Act 2000 (unlike the title "solicitor") it is not a specific criminal offence per se to use the term IFA.

There appear to be numerous platforms which offer investment opportunities and yet are not of themselves regulated. The whole is a minefield for the individual investor. Anyone seeking investment should require an authorised entity to procure it, and anyone giving financial advice or providing a platform to enable direct investment should be authorised and regulated.

The principal protection for the public however, as always, would be increased numbers of speedy and positive action taken against the unscrupulous wrongdoers in many more cases (ideally before they take funds from victims, often on a repeat basis), which may require a more robust operational approach, coupled with increased or,at least, part recovery-funded budgets.

In order to ensure confidence in investment in the UK more than anything a robust enforcement regime in practice as well as words is needed.

By Wedlake Bell's partner Frances Coulson and paralegal Laura Brookes.