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Legal fears on early warning

Financial services lawyers and Aifa have raised strong concerns over Government proposals to allow the new financial regulator to publicise ongoing enforcement investigations.

In a consultation paper published last week, the Government revealed plans to legislate to grant the Financial Conduct Authority, previously the Consumer Protection and Markets Authority, the power to publicise warning notices against firms and individuals.

The FCA will also have the power to disclose on what grounds the enforcement action is being taken.

The Treasury argues that this will mean greater transparency as consumers would be told about potential issues at an earlier stage.

Currently, a decision notice is issued to firms or individual who are given 28 days to refer it to the Upper Tribunal on appeal. Only once the appeal process has been completed can details about the enforcement action be published.

Aifa policy director Andrew Strange says: “We are concerned about some of the proposed new powers, particularly publishing the names of firms under preliminary investigation. This is a worrying shift towards guilty until proven innocent.”

CMS Cameron McKenna partner Simon Morris points out that, in many cases, warning notices do not lead to enforcement action being taken.

He says: “It is immensely damaging for a notice to be put out without necessarily any substance to it. What the regulator would be doing is shouting allegations through a megaphone, very often before they have been put to the firm and before the evidence has been obtained.

“It is highly dangerous, highly damaging and highly unsatisfactory. I think it is a very malicious proposal.”

4 Pump Court barrister Peter Hamilton says: “I think it is wholly wrong for an investigating authority to publish what it is investigating before it has reached any conclusions and before the person or firm involved has had a complete opportunity to answer all the points.

“It is very much a case of we think you are guilty and, from the public’s point of view, the reputational damage to the affected person or firm is huge.”

Reynolds Porter Chamberlain regulatory partner Steven Francis says: “The Government will have to tread very carefully when implementing this power. The regulator must respect the principle of innocent until proved guilty. The mere fact of an investigation simply should not be publicised until there has been an evidence-based determination.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Errrmmm …???

    Extract from Lord Turner’s letter to Andrew Tyrie at the Treasury Select Committee dated 15 December 2010:

    The legal position on publication of reports or documents generated in the course of such investigations is clear. In those cases where a decision is made not to progress with an enforcement action, we are not permitted to release them without the consent of all involved. Until now RBS has made it plain that it does not wish to provide consent. This regime – set out in FSMA and in relevant Single Market Directives – is designed both to ensure maximum flow of information, and to protect the legal rights of people under investigation.

    We therefore recommend that Government and Parliament should consider the case for introducing into the forthcoming legislation, provisions which would enable the PRA to conduct and publish full analysis of the causes of any bank failure or rescue, drawing openly on supervisory investigation material which would normally be subject to confidentiality constraints. Confidentiality constraints would continue, however, to apply in the case of investigations into executives or firms which have not failed or been resolved.

    We would need permission from RBS (and we expect from a number of third parties in addition) to do this notwithstanding the wording within the Act which you quote in your letter drawn from Section 348 (4) (b) of FSMA. This section of the act allows the FSA to make public information but only where we do it in such way that a person can not be identified, but with the legal meaning of ‘persons’ covering firms as well as individuals. It would not therefore allow us to put out a report on RBS, as RBS would, of course, be identified. This provision therefore can only used by us when making general statements from which it is not possible for particular firms or individuals to be identified; for example, as part of an industry wide review we may say several firms need to improve their controls.

    From here:

  2. “highly dangerous, highly damaging and highly unsatisfactory……….a very malicious proposal.”

    More of the same old same old then, no doubt fully supported by Mark Hoban, despite the fact that he’ll almost certainly claim that the FCA will be as independent of government as he claims the FSA to be.

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