The Financial Conduct Authority (FCA)’s proposed policy to publicly name companies under investigation has drawn sharp criticism from the House of Lords, raising concerns about reputational damage and potential harm to innocent businesses. The Lords’ financial services regulation committee argues that the FCA’s plan to routinely publish names of firms under scrutiny is unacceptable and lacks sufficient justification.
The committee’s report highlights the lengthy duration of FCA investigations, averaging three to four years, with no further action taken in 56% of cases. Publishing names prematurely, they argue, could unfairly tarnish the reputations of companies ultimately found to have committed no major wrongdoing, fueling media speculation and potentially impacting investment decisions. Lord Forsyth of Drumlean, the committee’s chairman, stressed that the potential damage to innocent firms and individuals is “not acceptable.”
The FCA’s initial announcement of the policy in February 2023 was met with widespread condemnation for its lack of prior engagement with the financial services sector. Lord Forsyth criticized the FCA’s consultation process as an “abject failure,” echoing concerns raised by FCA chairman Nikhil Rathi himself. The stated aim of the policy was to enhance the deterrent effect of investigations. However, critics argue it undermines the principle of “innocent until proven guilty” and could make the UK a less attractive investment destination, as no other jurisdiction routinely publicizes names at such an early stage.
In response to the backlash, the FCA revised its proposal in November, offering companies 10 days’ notice before public disclosure and raising the threshold for its public interest test. However, the Lords committee remains “unconvinced” that these modifications adequately address the core concerns regarding proportionality and potential reputational harm. This report comes amidst mounting pressure on the FCA from financial leaders to reconsider proposed diversity targets, fearing they could hinder growth. Executives have directly approached FCA chief executive Nikhil Rathi to express their reservations about the diversity and inclusion plans outlined in a 2023 consultation.
The FCA maintains that its intention is to improve accountability, public confidence, and information accessibility for both consumers and firms. An FCA spokesperson acknowledged shortcomings in the initial consultation process and emphasized the extensive engagement with industry that led to revised proposals. The spokesperson confirmed that the committee’s report will be carefully considered alongside other feedback received during the consultation period. The FCA also welcomed recognition of its efforts to expedite investigations.
This ongoing debate highlights the delicate balance between transparency and fairness in financial regulation. The FCA’s challenge lies in finding a solution that effectively addresses its objectives without inflicting undue harm on businesses operating within the UK’s financial system.
