Earlier this year, the Financial Conduct Authority proposed a significant update to its existing enforcement strategy, marking a notable shift in its approach to transparency. Previously, the FCA would only disclose details of ongoing investigations under "exceptional circumstances".
However, under its proposed new approach, the regulator plans to implement a "public interest test" to determine whether investigation details should be publicised, thus increasing the scope for transparency.
This shift has sparked considerable backlash from the regulated firms, who argue that the enhanced approach may undermine the FCA’s secondary objective of "promoting growth and international competitiveness of the UK market" by exposing them to risk of undue reputational damage.
Given that approximately 65 per cent of FCA investigations conclude without any action, these concerns warrant careful consideration.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, has recently spoken out in an attempt to reassure the firms.
Speaking at the European Compliance and Legal Conference, Chambers emphasised that while the regulator remains dedicated to enhancing transparency and integrity within the market, a careful and balanced approach will be taken. Further guidance regarding the public interest test is to be expected within the coming months.
Chambers stated that the aim of this new strategy is to bring to light areas of critical concern, and encourage firms to reflect on, and proactively correct, their own conduct.
Consequently, this evolving approach could provide a valuable opportunity for firms to reassess their strengths and weaknesses in order to mitigate risk of reputational damage.
The so-called ‘name and shame’ strategy may ultimately serve as a critical tool for reinforcing regulatory expectations throughout the industry.
Implications for whistleblowers
One of the key anticipated outcomes of this enhanced enforcement strategy is its potential to empower whistleblowers.
By encouraging transparency within the industry, the FCA may empower individuals who were previously uncertain about raising concerns of wrongdoing.
According to the FCA’s Whistleblowing Qualitative Assessment 2022, two-thirds of whistleblowers view the regulator as a "listener of last resort", feeling that their own firms inadequately address their concerns, thus prompting them to seek assistance from a higher authority.
Evidently, a significant number of these whistleblowers remain hesitant to approach the FCA. Through the practice of naming and shaming the regulator could instil greater confidence in potential whistleblowers by validating their concerns, thus increasing their confidence to come forward.
Strengthening whistleblowing culture
While these changes will certainly heighten confidence in reporting to the FCA, a significant challenge remains in regard to internal disclosures. Many individuals are reluctant to report wrongdoing within their own firm due to fears of facing repercussions.
A recent study by Bloomsbury Square Employment Law revealed that a staggering 51 per cent of UK employees do not feel safe or confident disclosing instances of misconduct.
Alarmingly, 39 per cent cited a "fear of retaliation or bullying" as the primary deterrent to reporting breaches. Furthermore, only half of all employees surveyed were aware of their firm’s whistleblowing policy, creating further uncertainty in regard to coming forward.
