Managing FCA investigations: A guide to processes and procedures

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A Notice of Appointment of Investigators from the UK’s Financial Conduct Authority is a correspondence few regulated firms will be delighted to receive. Here, we discuss what to expect from the investigations process, and how the right legal advice is pivotal to shaping the best response.

Any firm authorised by the Financial Conduct Authority (FCA), the financial regulatory body for ensuring that the UK’s financial markets are honest, competitive, and fair, will be aware of the standards, rules, and requirements that come with FCA authorisation, and the consequences of breaching them.

Regulating the conduct of nearly 50,000 businesses, the FCA has the power to launch investigations against businesses and/ or individuals suspected of breaching FCA rules, harming consumers, and reducing confidence in financial markets. Where it finds evidence of wrongdoing, the FCA can use various enforcement powers, from warnings and fines to criminal proceedings.

A more assertive approach

Post-covid, the FCA’s approach to such investigations, and any resulting enforcement, is becoming “more innovative, more assertive, more adaptive” according to chief executive Nikhil Rathi.

In 2022, the FCA issued more than £215m in fines, the largest of which was £29m. According to the FCA’s Annual Report for 1 April 2022 to 31 March 2023, there were also 591 open enforcement investigations relating to 224 cases, as well as 47 Skilled Person Reports examining issues such as controls and risk management frameworks, financial crime, and corporate governance.

“We are being tougher on firms who want authorisation to operate in the UK, using data more systematically to ask the firms we supervise more rigorous questions and using our enforcement and intervention powers more actively, pushing the boundaries where we need to,” Rathi said in his introduction to the FCA’s Strategy 2022-2025.

While this has not necessarily translated into an increase in the number of investigations the FCA has opened – a number that actually dropped in 2022-2023 compared to the previous period – it does suggest that the FCA intends to use its investigative powers more proactively to examine and fix operations and cultures, rather than simply enforce against breaches. This approach was highlighted as far back as 2017 during a speech by the FCA’s then-director of investigations, Jamie Symington, at Legal Week’s Banking Litigation and Regulation forum in June 2017.

“I want to be clear that the FCA does not use investigations only as a precursor to contemplated enforcement action when something has gone wrong,” he said. “But rather, investigation is a tool for finding out what has happened.”

Whether or not investigations lead to enforcement action, however, they are often lengthy, time-consuming and, in the worst cases, financially and reputationally damaging.

Companies under investigation must often allocate significant resource to managing investigations, whether that is cooperating with investigators or planning for any potential reputational fallout.

FCA investigations: Frequently-asked questions

How does an investigation start?

The FCA has powers to investigate and, where necessary, take disciplinary or enforcement action against, a firm or an individual under the Financial Services and Markets Act 2000 (FSMA), as amended by the Financial Services Act 2012.

An investigation is often triggered by a referral, either from a third party or via the FCA’s own supervisory process, following a potential breach of its rules. If the FCA decides to investigate, it will take on average 40 months to complete the investigation. This rises to 64 months if the matter is progressed to the Regulatory Decisions Committee (RDC) or the Upper Tribunal.

Does the FCA inform a firm that it is under investigation?

Under section 170 of FSMA, the FCA must inform a firm or individual in writing that it has appointed investigators. This is known as a Notice of Appointment of Investigators. The FCA will also provide written notification when it appoints additional investigators or changes the scope of its investigation.

There are exceptions, however. Where a firm or individual is suspected of a criminal offence, for example, the FCA may not provide a Notice of Appointment of Investigators if doing so would frustrate an investigation.

What are scoping discussions?

The FCA generally holds scoping discussions at the start of an investigation, during which it will outline the nature of its concerns, why it has appointed investigators, the scope of its investigations, any milestones, and individuals or documents to which investigators may need access.

Engaging with this process is vital if a firm is to allocate the right amount of resource and ensure that the investigation is conducted and concluded as efficiently as possible.

How does the FCA conduct interviews?

There are four types of interview with the FCA:

  • voluntary and not under caution
  • voluntary and under caution
  • under caution and under arrest
  • compelled under statutory powers.

The FCA will decide which type of interview is appropriate on a case-by-case basis. Interviews may also involve other enforcement agencies, such as the Police.

Before attending any interview, individuals should engage a legal adviser who specialises in FCA investigations. Such advisers can accompany individuals to the interview and will provide support and advice on the effect of any cautions, and when and how to answer certain questions.

It is crucial to appreciate that, even if you or your business are not being investigated by the FCA, but you are assisting as a witness, the FCA can still compel you to attend an interview. Therefore, if the FCA is requesting a voluntary and not under caution interview, it is advisable that you co-operate as much as reasonably practicable, to avoid an interview being compelled of you.

Can the FCA search a firm’s premises?

Under sections 176 and 122D of the Act, the FCA can apply to the justice of the peace for a warrant to enter any premises where relevant information or documents are held.

The FCA may use these powers if an individual fails to comply with a requirement for information, or if it has reasonable grounds to believe that relevant information or documents may be removed, tampered with, or destroyed.

When will the FCA inform a firm of the investigation’s outcomes?

If the FCA decides to submit an investigation report recommending regulatory action to the Regulatory Decisions Committee (RDC), it will send a preliminary investigation report, along with a preliminary findings letter, to the subject of the investigation first.

The recipient will then have 28 days to respond, either by confirming that the facts are complete and accurate, or by providing further comment. The RDC will consider any further comments, so long as these are given within the 28-day window.

It may not always be appropriate for the FCA to send a preliminary findings letter, however, particularly if urgent action is required to protect consumers or reduce the risk of financial crime.

Will the FCA publicise its investigation?

Both the FCA and the firm/ individual under investigation must treat the investigation, and any details relating to the investigation, as confidential. This does not prevent the subject of an investigation from sharing certain details when seeking professional advice, providing information to auditors, or making any notifications required by law or contract, although these are subject to restrictions on the disclosure of confidential information in section 348 of FSMA.

The FCA can, however, make public announcements at any point of an investigation if doing so is deemed necessary to protect consumers or investors, prevent further wrongdoing, or encourage witnesses to come forward.

Section 4 of the FCA Handbook provides further details on the investigations process. FCA investigations are complex, however, and will vary depending on the nature and facts of the case.

Once a firm becomes aware that it is under investigation, it should engage a legal professional who specialises in FCA investigations at the earliest opportunity. After analysing the details of the case, a specialist can advise on the best response and approach at every stage of the investigation, from interview to any enforcement action.

While not all FCA investigations will conclude with enforcement, many will demand time and resource that few financial services providers can afford in the current economic climate.

By securing the right advice from the outset, a firm under investigation has a better chance to ensure the process concludes as quickly as possible, while continuing to provide high levels of service to its customers.

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