The FSA has today published a consultation paper on the Financial Conduct Authority’s publicity policy around early warning notices.
The move to publish warning notices at an earlier stage marks a radical departure from the previous system where individuals or firms would be able to respond to allegations against them at the independent Regulatory Decisions Committee before information about the ongoing enforcement case against them is made public.
Here are some scenarios from the FSA paper on when the FCA will and will not publish early warning notices:
- Issuing a warning notice to a senior manager of a bank for failing to exercise due skill, care and diligence in managing the firm’s business
The individual suffers from a long-term physical illness and states he will significantly deteriorate if details of the warning notice are published. He has a report from a consultant to support his claim. He also states his wife is suffering from depression and her condition may deteriorate if the warning notice is published. He adds his children have already been made fun of at school following earlier press commentary about his conduct, and this is likely to be repeated if the warning notice is made public.
FCA likely to publish? No, not if the senior manager had clear and convincing evidence his health would seriously deteriorate, or if there was clear and convincing evidence other family members would be affected. The FCA would be likely to publish a warning notice if the only argument was media intrusion.
- Issuing a warning notice to a small IFA over inadequate systems and controls over its sales processes for high risk investment products:
The firm argues if a warning notice is published many existing customers will go elsewhere and the company could have difficulty attracting new business. This would lead to staff redundancies. The IFA is also able to produce evidence to show a reduction in business will reach the point where the firm becomes insolvent.
FCA likely to publish? No, not if there is clear and convincing evidence of likely insolvency. The FCA would also probably not publish if it would lead to staff being made redundant but the firm would need to prove that negative publicity rather than any other factors would be the reason for job losses.
- Issuing a warning notice to a manager for failing to observe proper standards of market conduct in carrying out her role:
Her firm has supported her through the investigation but the individual argues she is likely to lose her job if the warning notice is published. She also argues even if the case against her is later dropped, her career prospects will be irrevocably damaged.
FCA likely to publish? Yes, as the firm has also decided to support the employee through the investigation. If the case against an individual is later dismissed, the FCA will publish a notice of discontinuation on its website.
Where it publishes early warning notices, the FCA plans to include a disclaimer that the warning notice is not the final decision, and that the firm or individual can still take their case to the RDC and the Upper Tribunal.
The consultation closes on 18 June.