The FSA has called for the draft financial services bill to be changed so that the Financial Conduct Authority will not have to notify firms before publicising that they are the subject of ongoing enforcement investigations.
The Treasury published a consultation paper on the new regulatory framework in February which announced plans to legislate to allow the FCA to publicise warning notices against firms and individuals and the grounds on which action is being taken.
The draft financial services bill legislation published in June requires the FCA to consult the subject of the warning notice before issuing any publicity on the investigation.
The FSA has today published a memorandum it submitted to the joint committee on the draft financial services bill.
It argues the requirement to consult the subject of early warning notices will “seriously undermine” the effectiveness of the new power because most, if not all, firms are likely to fight details of the warning notices being published.
The FSA says this will lead to firms and individuals seeking court injunctions to stop the nature of the investigation becoming public, which the FSA says is not in the public interest.
The FSA says: “Our strong preference therefore would be for the requirement to consult the subject of the notice to be removed from the bill. The effect would be to bring this provision into line with standard civil and criminal legal powers and would counter the suggestion that the regulatory process is disproportionately biased in favour of non-disclosure in the interests of financial services and industry practitioners.”
Financial services lawyers have already warned that early warning powers are dangerous as warning notices do not necessarily lead to enforcement action. Aifa believes the power marks a “worrying shift towards guilty until proven innocent”.