The FCA Proposes a New Approach to Publicise Investigations

The UK Financial Conduct Authority (FCA) has announced that it will take a new approach to deterring bad behaviour by publicising enforcement investigations prior to their conclusion, including the identity of the subject of the investigation.

In a welcome and refreshing proposal (CP24/2), the FCA plans to be more transparent about what they are investigating and speed up the delay between misconduct and enforcement to show the efficacy of the work performed. To do this, the FCA will utilize the best of technological advances at its disposal to determine when wrongdoing may be occurring:

• Leverage its cyber forensics team
• Use better analytic tools for trade and market surveillance
• Increase its trading data coverage to over 1bn trades a day

The FCA hopes this new approach will have two advantages. No firm wants to see their name in lights during the course of an FCA investigation, however this is precisely the deterrent that should drive internal compliance teams to sharpen their own monitoring and surveillance. The FCA also recognizes that it is often too late for whistleblowers to provide intelligence to the regulator as they only become aware the firm was under investigation once an outcome has been decided.

Reputational damage, bad press, questionable behaviour by senior managers, and uncomfortable investor due diligence questions are the types of avoidable regulatory headache that can spring from nowhere and cause overnight chaos to an investment firm if the internal processes are found to be deficient. In the concluding remarks from Theresa Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, on 27 February 2024, she stressed that firms are on the frontline. They should use their data, employee knowledge, and operational set up to maintain a robust compliance environment.

Our guidance

In the practical sense, we believe that firms can start creating that robust compliance environment by:

• Refreshing compliance monitoring programmes not just annually, but whenever the business dramatically changes. If your firm is in the middle of a capital raise, or expanding into new markets, ensure that new regulatory requirements or reporting are added before deadlines slip and fines ensue.
• Keep compliance culture strong within all areas of your business. Staff should attend compliance training and stay up-to-date with their attestations. Staff should also feel comfortable coming forward to their Compliance Officer to raise concerns or whistle-blow before serious misconduct occurs.
• Check that your firm is using modern and relevant platforms or systems efficiently to remove the manual load of repetitive monitoring so your Compliance Officer can focus on targeted tests. What worked for your firm a few years ago may not be the best-in-class product for your growing business now. Investors will expect businesses to move with the times and manage risk appropriately.
• Consider the “reasonable steps.” Have your senior management been focusing on a conveyor belt of upcoming deals or new launches and neglected core risk areas like conflicts of interest, insider lists, annual compliance policy reviews? Have they been slow to update AML procedures and due diligence for new investors or third-parties?
• Has cybersecurity testing been upgraded to account for an increasingly AI-enabled world?

Conclusion

The FCA’s proposals are out for consultation by 16 April 2024, and it is encouraging the industry to respond.

In the meantime, firms should take this proposal as a sign that the FCA is looking for new ways to reduce misconduct and increase compliance. As regulatory standards continue to evolve, prioritizing proactive adaptation is essential for firms seeking to maintain operational integrity and regulatory compliance. Make sure your firm doesn’t provide the regulator a reason to come knocking.

How we help

The compliance environment has never been more complex or demanding. We can help you to navigate the evolving regulatory landscape while considering the complexity of your firm’s unique compliance requirements. ACA Signature can help.

With ACA Signature, you can choose the combination of compliance advisory,  innovative technology, managed services, and cybersecurity to create a scalable solution that is right for your firm and gain expert insight, guidance, and support as you navigate emerging compliance and risk challenges. 

Reach out to your ACA consultant, or contact us to find out how ACA Signature can help transform your firm’s compliance program. 

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