RegTech Intelligence 
This week the FCA published a policy statement on how it plans to use new powers to publicise proposed investigations into bank misconduct. These powers were given to the FCA in 2012; previously, it could only publish information on cases once it had decided to take action. It now intends to publish details of planned enforcement action in ‘warning notice’ statements, which will name, not only the institution under investigation, but also – potentially – the individual under suspicion.
These new powers are sweeping and, from this policy statement, the checks on their use appear flimsy. They are justified on grounds of consumer protection, through making the investigation process more transparent at an earlier stage. But the only thing the FCA needs to do before making such information public is ‘consider the circumstances’ of each case. It must contact the person under investigation before publication, but must only “take into account any evidence that publication would be unfair”. The regulator can then publish “such information about the matter to which a warning notice relates as we consider appropriate”.
It remains unclear if the FCA decision making process for handing out these notices will be accountable, and details of investigations still at an early stage – and which are later proved insubstantial – could easily be published with little oversight.
These concerns were raised by the industry in consultation, but were largely ignored by the FCA. In particular, firms disagreed with the presumption of publication, rather than publication being an extraordinary measure in certain circumstances, and disagreed with specific individuals being named at early stages of the process, calling for anonymity in the statements.
There is also controversy over the means of redress. The FCA plans to publish a notice of discontinuance to indicate that the action did not materialise. But this was criticised by firms as failing to redress the reputational damages which could arise from these statements. This is similar to cases of defamation, where a common remedy is publication of an apology with similar prominence to the original libel.
The powers follow recommendations in the PCBS report that “there is a strong case in principle for a new criminal offence of reckless misconduct in the management of a bank”. The government has supported this, with jail sentences possible for those found guilty of the new offence. This is part of the new accountability regime being constructed for top bankers, and seen as vital to restoring trust in the banking industry following the crisis.
It is hard to generate much sympathy for well-paid bankers. There was rightly anger at pre-crisis practices of bonuses largely decoupled from performance, and the sense of incentives being misaligned, with those judged to have played a major role in allowing the build-up of systemic risk escaping the consequences and walking away with fat pay packets.
With these new powers, we may be at risk of throwing the baby of sanity out with the bathwater of impunity. After Hector Sants, head of global compliance at Barclays, on leave for three months due to the “exhaustion and stress” of building a change programme up to meeting new regulatory standards, and PCBS set to impose new criminal penalties on bankers for failing in their job, do these new panopticon powers risk unnecessary reputational damage to the UK financial services industry as a result of the FCA’s perceived need to appease popular sentiment rather than follow pre-existing due process?