That the FCA has the power to make public the fact and content of regulatory investigations it undertakes at the warning notice stage is a highly contentious.
Prior to the changes brought about in 2010, such publication was routinely only made at or following decision notice stage. A decision notice was the result in most cases of (at least) a scoping meeting between the FSA and the investigation subject, a report on the progress and preliminary outcome of the investigation and the chance to consider and make representations on its content (or draft thereof).
The change to allow earlier publication in what is often a lengthy information gathering and investigatory process initially occurred as the result of political will. This focus is combined with a legitimate desire to increase transparency levels as to the processes of the regulator and to inform the market and where relevant, consumers of particular concerns in respect of specific matters arising in investigations where appropriate.
Publication of warning notices occurs at an early point in time in the investigation process and often well before there has been a full opportunity on the part of an Investigation Subject to assess the matters under consideration by the regulator.
This means there is a real and present risk on publication that there may be incomplete or erroneous information published in a Warning Notice. Logically, the more complex the matters under investigation are, the higher the risk of potential errors in the content.
Publication at this stage also includes observations as to the likely penalties proposed by the FCA, based on a preliminary view of what may be largely untested evidence. Early publication on such terms is not entirely dissimilar to publicising the “sentence” before the “trial” has occurred.
Clearly, FCA investigations where warning notices are published are not criminal proceedings before the Courts, but there is a valid comparison to be drawn relating to procedural fairness.
It is human nature to approach a reported publication (for example a Warning Notice) as ‘fact’ and credence will naturally be given by the public to a notice published by a regulator – despite the untested nature of its content.
The maxim of “where there’s smoke there’s fire” applies here and the spectre of significant reputational and associated economic loss is very real for regulated firms and individuals under investigation.
The recently published statistics of the RDC in Money Marketing showing that there are numerous cases discontinued during an investigation process illustrates the very real need for care in the early publication of Warning Notices to avoid what might prove to be irreparable and potentially entirely unjustified damage to an Investigation Subject, especially where the investigation is subsequently discontinued following publication.
The recent indications by the FCA that it is conscious of the concerns of regulated firms and individuals and early publication may reveal a softening in approach of the regulator and a realisation of the need to carefully weigh the possible benefits of early publication from a regulatory perspective against the readily foreseeable detrimental effects on investigation subjects.
There will be certain (rare) situations where early publication is absolutely mandated where regard for the potential ‘downside’ to the investigation subjects can be largely disregarded; but in most cases a sensibly reasoned risk-based approach by the FCA would be warranted, and no doubt, welcomed by those under investigation.
Douglas Cherry is senior associate in the financial markets group at SJ Berwin