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.”