Competing interests – phase two of the 'Name and Shame' proposal

On 28 November, the Financial Conduct Authority (FCA) released phase two of their consultation regarding proposals to publicise enforcement investigations, outlining the changes they propose to this so-called 'Name and Shame' proposal.

In February of this year, the FCA released their initial consultation paper setting out plans to publicly announce details of enforcement investigations at an earlier stage of the investigation, in the hopes that this would assist in reducing serious harm to the consumer – protecting consumers from harm being one of the FCA's three pillars.

This proposal has been the source of much contention since its publication, with fears that such a plan would have a negative impact on business within the UK, and disincentivise competition, subsequently hindering industry growth. This view stemmed largely, from the fact that the plan to 'name and shame' those companies being investigated might have a significant and long-lasting impact on their reputation, which when noting that most FCA investigations result in no action being taken, was viewed as a disproportionate potential harm.

Following much public discourse, the FCA has now released phase two of the consultation paper, which outlines a number of significant changes to the original proposal. The new proposal appears to have softened somewhat – though the decision as to whether to make a particular announcement will still require consideration of whether doing so is in the 'public interest', with the FCA setting out a current list of factors which will be weighed when deciding whether to make such an announcement.

"Significant Changes" to the proposal

The original consultation proposal set out a public interest test which would be applied when deciding whether to make an announcement. Phase two of the consultation paper makes clear that the public interest framework will remain central to the decision as to whether to release details of an investigation. However, the FCA has proposed four "significant changes" from the initial proposal, which include some additional considerations for the public interest framework. These changes include:

1. Proposing that the impact of an announcement on the relevant firm will form part of the FCA's public interest test and be central to their consideration of whether to announce an investigation and name a firm.
2. Proposing that firms be given 10 business days' notice of an intended FCA announcement, to make representations to the FCA. Then a further 2 business days' notice of publication of any announcement if the FCA decide to proceed despite the representations.
3. Proposing that the public interest test take into account the potential for an announcement to seriously disrupt public confidence in the financial system or the market.
4. Making clear that the FCA will not make any proactive announcements of investigations that are currently ongoing. So, the proposal to announce investigations will only affect those firms who are investigated after the plan is put into place – though the FCA confirmed that they may reactively confirm ongoing investigations where this is in the public interest.

The fear of most firms when the proposal was first announced was the potential reputational damage such an announcement could have on their business. In an apparent effort to mitigate this concern, the new proposal makes clear that such potential reputational damage to a relevant firm (which will be made clear through representations) and damage to the financial system as a whole, will form part of the central considerations within the public interest test. The question remains, how this potential reputational risk will be weighed in practice.

When might the FCA make an announcement?

In response to previous feedback seeking clarity on how exactly the FCA intend to weigh the public interest test, the new consultation paper sets the factors which the FCA would take into consideration. The full list can be found within the consultation paper, though factors in favour of making an announcement include:

• The information about the matter under investigation is already in the public domain.
• Publishing is likely to be in the interests of potentially affected customers, consumers or investors and/or customers, consumers or investors more generally.
• Publishing is likely to prevent direct or indirect consumer harm, for example in cases of suspected fraud.
• Publishing would be in the interest of creditors (where a firm under investigation is insolvent or in administration)
• Publishing would provide an educational benefit for firms and market users to understand the types of conduct the FCA is investigating and could drive better compliance with FCA rules and regulations.
• Publishing is likely to have an operational benefit by encouraging potential witness or whistleblowers to come forward.

The factors against making such an announcement will include whether:

• Publishing could cause serious market or sector impact, financial instability, wider systemic disruption or impact, or seriously disrupt public confidence in the financial system or the market.
• Publishing would be likely to have a severe impact on the firm or on third parties, in particular, the firm's current or former directors and/or employees. For this factor, firm size would be particularly relevant, with the impact on smaller firms potentially being grater.
• Publishing is likely to have an adverse impact on the interests of customers, consumers or investors.
• Publishing could hamper an FCA investigation or an investigation by another regulatory body or law enforcement agency.

Whilst the FCA has identified more factors in favour of making an announcement than against, these factors reveal a change which will likely be a breath of fresh air for affected firms. In particular, the previously proposed framework made no room for the interests of those firms under investigation, whereas the current proposal makes clear that the impact on not only the particular firm, but also their employees, directors and the financial market as a whole will all be taken into account. The FCA's acknowledgment of smaller firms having the potential for a greater negative impact from a publication is also to be welcomed.

Summary

It appears that, in response to the backlash received following the initial consultation, the FCA has somewhat softened their initial proposal. It remains the case however, that almost 65% of enforcement action taken by the FCA results in no action being taken, so the continued fear of significant reputational damage being caused through an ultimately unwarranted announcement remains significant. 

Ultimately, it remains to be seen how the FCA would implement this policy in practice, and whether significant reputational damage to a firm will, in itself, outweigh protecting the interests of the consumer in any given case. Whilst the objective of increasing transparency and accountability, along with the need to protect consumers are all laudable objectives, this still needs to be properly balanced with the need to promote healthy competition. 

For those who wish to respond to the FCA's newest proposals, responses must be provided by 17 February 2025 using the FCA's online response form.