Financial Conduct Authority name-and-shame plans scuppered before launch

Future BCLP trainee, Keenan Taku explores the FCA’s abandoned proposals to name firms under investigation

The Financial Conduct Authority (FCA) has three operational objectives as set out in Section 1 of the Financial Services and Markets Act 2000 (“FSMA”): a) protecting consumers, b) maintaining the integrity of the markets and c) promoting healthy competition between financial service providers.

These three mandates are crucial in terms of maintaining the integrity of the financial system, providing a stable environment in which market participants can act, and ensuring consumers are adequately protected from harmful actors and products through the use of regulations and enforcement powers.

Part 1 proposals

On 24 February 2024, the FCA published CP24/2 (the “Transparency Proposals”). This was a consultation paper setting out the adoption of a new, more flexible framework for publicising the names of firms at the onset of enforcement investigations, and would stir up considerable controversy in the City over the succeeding months.

According to the current enforcement guidance regime, naming a firm under investigation before it has concluded is only done in ‘exceptional circumstances’, such as to protect consumers and investors, or to maintain public confidence in the market.

For example, in 2022 the FCA publicised the opening of an investigation against Citigroup Global Markets for a trading error that caused a ‘flash crash’ (a rapid, volatile drop in the price of equities followed by a quick recovery) and for which CGM was eventually fined £27.7 million in 2024. Having made the announcement very near to the actual incident, the FCA believed, quite reasonably, that this reassured investors that an accountable and responsible regulator was alert and addressing the problem, and this may have helped to maintain trust and confidence in the markets. However, this power is seldom used.

Under the Transparency Proposals, the ‘exceptional circumstances’ test would have been replaced by a new ‘public interest’ test that set out a non-exhaustive list of factors that the regulator would take into consideration before deciding to name companies under investigation. In effect, the bar for public announcement would be significantly lowered, which would make it a more common event in the financial markets. Most controversially, the impact on firms under investigation was explicitly ruled from the public interest framework and was accompanied by a notice period of no more than 1 business day before an announcement of a named firm would be made.

Backlash to the original consultation

Then-Chancellor Jeremy Hunt, in a rare intervention with the regulator, expressed hope that the FCA would “re-look at their decision”. Citing that the FCA now had a secondary growth duty as enacted by Parliament in 2023, the proposals “did not feel consistent” with said duty, according to Mr Hunt who introduced the 2022 ‘Edinburgh Reforms’ in a bid to loosen financial regulation. Chancellor Rachel Reeves, while not making explicit reference to the Transparency Proposals, used her speech in Mansion House to criticise financial regulation that had “gone too far” and hampered financial service firms since the GFC, promising a package of regulatory reforms to get the City back on its feet.

Herbert Smith Freehills expressed several concerns, which included the removal of certain procedural safeguards and the potential for a less transparent enforcement process. It was noted that the significant reduction of the guide, from 328 pages to 59, may omit important guidance which could lead to ambiguity in enforcement procedures. If firms are uncertain about what powers the regulator has and how they are exercised, this can ultimately contribute to regulatory uncertainty for firms, weak deterrence against misconduct, and damage to the UK’s reputation as a financial hub.

BCLP contested that the proposals were incompatible with several legal obligations, including its general duties under section 1B FSMA as highlighted earlier in this article. Far from ensuring financial stability or promoting competition, the firm highlighted the one sidedness of the public interest framework by reference to the fact that the target firms’ interests have been deliberately excluded as a “specified factor” in the test. The firm went on further to say that “when a major regulator announces that there are circumstances suggesting a firm has breached regulatory standards, customers and investors will always be inclined to believe that there is “no smoke without fire”. Such circumstances mean that the firm may suffer significant prejudice as a result of an announcement, creating an unstable business environment.

One of the most oft-cited objections from detractors across the City was that in 2023/24, the FCA reported that approximately 67% of enforcement investigations resulted in no further action, reinforcing concerns that premature public announcements could unfairly damage firms that are later cleared. Given that investigations can take three to four years from start to finish, it is little wonder why announcements appear detrimental to public reputation. As a client, investor or supplier of a firm under investigation, the commercial association would potentially be so damaging that waiting for a result would not cut it: you would need to find alternative partners.

However, an upside is that they could have promoted transparency for consumers and built trust in the financial system. By announcing that a firm is investigated, consumers could feel more reassured that the regulator is actively working to protect them from nefarious or unfair dealings and that bad behaviour is being punished. One clear demonstration of precisely this lack of transparency and trust was the PPI scandal (in which tens of millions of consumers were mis-sold credit financial products) that wasn’t discovered until the early 2000s when it had already taken place for decades. The inability to identify the scandal, coupled with a delayed regulatory response, perceived weak enforcement, and underestimation of the scale of mis-selling rightfully caused the kind of mistrust in the financial system that supporters of the Transparency Proposals want to avoid.

Transparency also allows market participants to make clearer, more informed decisions. In this regard, consumers and firms will feel emboldened to avoid dealing with businesses under investigation due to the perceived risk of regulatory breach or other unlawful conduct, which itself minimises the risk of being associated with such actions.

Following widespread criticism from across the financial services sector, the House of Lords Financial Services Regulation Committee (FSRC) wrote to the regulator seeking further clarification and justification of the proposals, with the Head of the Committee Lord Forsyth of Drumlean warning that such proposals risked having a “disproportionate effect on firms”. To fully come to terms with the regulator’s reasoning, the Committee requested a cost benefit analysis from the FCA to evidence its proposed changes.

In April 2024, the FSRC invited respondents to give evidence, who highlighted major failings in the consultation process. A number of law firms were among the respondents submitting evidence as highlighted with Herbert Smith Freehills and BCLP above.

Part 2 proposals

In November 2024 the FCA issued revised proposals in a second consultation paper: CP24/2, Part 2. Taking on the feedback from stakeholders, the Part 2 proposals would include 1) the impact of an announcement on the relevant firm and 2) the potential for an announcement to seriously disrupt public confidence in the financial system or the market as considerations to the public interest test.

Furthermore, the 24-hour notice period has been extended to 10 days for firms to make representations to the FCA, and firms will receive an additional two days’ notice if the regulator decides to announce.

The FCA defended its decision not to publish a CBA by citing s138I FSMA, which mandates CBAs for new rules, not changes to enforcement guidance. However, this reasoning was strongly contested by stakeholders who argued the economic impact warranted voluntary disclosure to fully make sense of why the proposals were being introduced.

Closure and moving forward

In the face of the government’s strong commitment to economic growth and widespread institutional backlash from major players and groups in the City, the FCA’s Transparency Proposals were dropped on 12 March, with chief executive Nikhil Rathi citing a “lack of consensus” as the reason for not moving forward. While firms and investors may welcome the decision, it raises an uncomfortable question: where does this leave consumer protection?

The FCA’s retreat is a clear signal that UK regulatory policy is shifting towards market-friendly policies that prioritise business confidence over aggressive enforcement. Transparency, once seen as a pillar of financial integrity, has now been weighed against economic growth and found wanting. The government’s mission to position London as a global financial hub may well succeed, but at what cost?

History has shown that when consumer protection is sidelined in favour of economic growth, the consequences can be severe. The PPI mis-selling scandal, where billions were eventually paid out in compensation, was not a failure of overregulation but of too little, too late. A financial system that protects firms at the expense of transparency risks eroding public trust: a lesson that regulators and policymakers would do well to remember.

As the FCA moves forward under mounting pressure to foster growth, the challenge remains: can it strike a balance between maintaining confidence in the markets and ensuring consumers are not left in the dark? Or will this be a precedent for a more lenient regulatory approach, where accountability takes a backseat to economic ambition?

Keenan Taku is a future trainee solicitor at BCLP. He has a strong interest in capital markets and investment funds, holding a Capital Markets and Securities Analyst certification from the Corporate Finance Institute.

The Legal Cheek Journal is sponsored by LPC Law.