In March 2013 the FSA published discussion paper DP13/1 on proposals to increase transparency following the introduction of the Financial Conduct Authority in April 2013.
The proposals dealt with increasing transparency in three ways:
- The FCA being more transparent about itself and its own processes.
- The FCA publishing more information about firms, individuals and markets.
- Information that the FCA could compel firms to release about themselves.
The FCA has now published a feedback statement to DP13/1, after considering all the responses that it received.
The headlines are unsurprising. Everyone – firms, trade bodies, consumer representatives – considers that it would be beneficial for the FCA to be more transparent about itself.
Firms have some concerns about information that the FCA may publish about firms or that the FCA may compel firms to publish about themselves. Understandably, firms are concerned that in certain circumstances the publication of such information could be unfair to the firms or certain individuals and could unfairly distort competition or give a misleading impression by focusing only on limited information about a firm.
To firms’ credit, however, these appear to be genuine concerns – with firms supporting increased transparency in principle subject to getting the details right – rather than an attempt to brush things under the carpet wherever possible.
I am most interested in the FCA’s proposals to be more transparent about itself and its own processes. Many firms would accuse the FSA of lacking transparency in many areas and the FCA represents the opportunity for a new start on this issue.
The object of increasing the transparency of the regulator should be two fold:
- To make the regulator more accountable for its actions – and if it has formally committed to transparency then it should focus the regulator’s collective minds when making key decisions.
- To help those which it regulates understand as early as possible what the regulator is thinking and what its approach is likely to be in key areas of regulation.
As in all “markets” participants want as much certainty as possible. This should result in a more stable “market” for the firms and the ability for firms to plan long term for success and sustainability rather than continually reacting to unexpected regulatory change.
The FCA’s tentative proposals to publish more information about its own enforcement and supervisory activities are particularly interesting, but this is potentially its most problematic area.
I would fully endorse the proposals for the FCA to say more about what it is trying to achieve through its enforcement activities overall and to provide summaries of the feedback meetings held with firms at the end of cases – providing confidentiality can be realistically maintained.
This is likely to provide real insight for other firms into the FCA’s enforcement focus and where those firms have gone wrong. This in turn may enable other firms that are in danger of making the same mistakes to act as early as possible to prevent any consumer detriment. This has to be a good thing.
I have no doubt that if the FCA proceeds with this approach the feedback summaries will become essential reading for compliance directors – and lawyers– everywhere. The proposals to publish more information about the FCA’s supervisory activity also look very positive. Again this will be very useful information that will allow firms to gain a clear understanding of areas that the FCA is focusing on.
The FCA expressed a reservation that the information could have a negative effect if it were used by firms to identify areas which were not currently the subject of FCA scrutiny and lower their standards in those areas. However, a decision not to publish additional information for that reason really would be pandering to the lowest common denominator. The FCA is right to have decided against that. You would hope that the future of such firms in an environment of increased regulatory scrutiny will be severely limited in any event.
Respondents to DP13/1 were understandably enthusiastic about the FCA’s proposal to be more transparent about its work on thematic reviews and early intervention – again subject to the anonymity of the firms involved being preserved, particularly as in such cases there may have been no formal enforcement process with an early resolution agreed between the parties.
This must be a good thing as it will again provide firms with the earliest possible warning signs about issues of concern to the FCA that may be prevalent in the market and among other firms. Any such activity by the FCA should always be based on existing rules –although it is possible that new guidance may be required on those existing rules where new practices are observed.
The FCA’s proposal should not result in the formal rule-making process being circumvented, any increase in “retrospectivity” or moving the goalposts after the event on the part of the FCA, something of which the FSA was often accused.
Overall I found DP13/1 and the feedback paper encouraging in terms of the tone being adopted by the FCA. There appears to be a genuine commitment on the part of the FCA for more transparency on its part, and this is being received with (qualified) enthusiasm by firms.
As I think I have said before, when it comes to the approach of the new regulator, it will be judged by its subsequent actions. But the signs are that there is going to be a material shift in the FCA’s approach which could benefit all firms. I am an optimist by nature – let’s wait and see…..
Alan Hughes is partner at Foot Anstey