FCA may warn sooner when wrongdoing is suspected

LONDON Tue Oct 15, 2013 2:10pm BST

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013.

Credit: Reuters/Chris Helgren

Related Topics

LONDON (Reuters) - The FCA may in future warn investors much earlier that it suspects wrongdoing such as fraud or insider trading at firms, in a move strongly opposed by the financial industry.

In the past, the regulator published information about such cases only after a final decision had been made to penalise the firm or individual in question.

It can now choose to publish the warning notice sent to a firm or individual telling them that enforcement action is expected - prior to a final decision and appeals - to help prevent any further harm to investors and increase transparency.

"Our view is that, given these benefits, it will normally be appropriate to publish details of a warning notice to make public the nature of our concerns," the Financial Conduct Authority (FCA) said.

In the year to March, the FCA's predecessor, the Financial Services Authority, issued 22 such warning notices. Ten were followed by penalties, one case was discontinued, and 11 cases are still outstanding.

The FCA said that, historically, most warning notices were followed by fines or other penalties.

Companies fear being permanently tarnished even if proceedings are closed without any enforcement action being taken.

Tracey McDermott, director of enforcement at the FCA, said the watchdog would consult with the party under investigation and take into account any evidence that publication would be unfair.

"It is clear that the more transparent and open we can make the regulatory process, the more confidence we can give people that we are acting in their best interest," McDermott said in a statement.

The FCA was launched in April to help draw a line under years of mis-selling of financial products.

Sue Lewis, chairwoman of the FCA's Consumer Panel, said people needed to be told early which firms were being investigated so they could choose who to do business with.

"The position of financial services has been completely out of synch with public opinion. In the legal system, alleged criminals are routinely named when charged with serious offences. Why should it be any different in the case of financial services?" Lewis said.

Simon Morris, a lawyer at CMS, a legal firm specialising in finance, said the new power was grossly unfair and a tool for the FCA to gain publicity. He said was difficult to see how any individual could keep their job after being named by the FCA.

"The FCA does not need to name individuals to publicise what it is doing to tackle misconduct but knows that the crowd only gathers when there is a body in the stocks," Morris said.

(Reporting by Huw Jones; Editing by Kevin Liffey)

FILED UNDER: