UK Lords issue a report on the FCA - Naming and Shaming: HOW NOT TO REGULATE.

A Lord's report concludes that naming and shaming is not the way to regulate - Thursday, 6 February 2025

• A House of Lords report has called on the Financial Conduct Authority (FCA) to abandon its controversial ‘name and shame’ proposals, which would publicly identify firms under investigation before any wrongdoing is confirmed.
• The report argues that this approach could unfairly damage reputations and undermine trust in financial regulation. 
• Following its inquiry on the FCA’s consultation paper on publicising enforcement investigations, the Committee, which was established last year, has today published its first report,
•  Naming and shaming: how not to regulate.
• https://publications.parliament.uk/pa/ld5901/ldselect/ldfsrc/76/76.pdf

The report outlines eight recommendations:

1. Demonstrate that stakeholders’ concerns have been adequately addressed after the closure of the second consultation on 17 February 2024 and amend its proposals if necessary before making any final decision on implementation.
2. Withdraw the proposals if it has not found an acceptable balance between realising the potential benefits for consumer protection and managing the potential risks to firms, individuals, and market stability.
3. Change its policy of producing a cost-benefit analysis only for rules and guidance on rules to allow such analysis to the policy-making process for significant changes such as this.
4. Publish further guidance on how the factors contained in the proposed public interest will work in practice to demonstrate that decisions on whether to publish enforcement investigations will be made according to a robust, fair and proportionate process.
5. Consider increasing transparency by focusing its efforts on current measures that help expedite its investigative processes before making substantial changes to the broader framework.
6. Ensure that future consultations are properly signposted on the Regulatory Initiatives Grid in advance and review its internal processes regarding earlier engagement with stakeholders when appropriate.
7. Publish a ‘lessons learnt’ on the appropriateness of its internal processes and communication strategies for consulting on a change of this scale and setting out measures to prevent similar mistakes.
8. Engage with HM Treasury regarding any future developments relating to its enforcement investigation proposals to ensure that they are aligned with the government’s view of secondary international competitiveness and growth objectives.

Long read

• The cross-party House of Lords Financial Services Regulation Committee calls on the Financial Conduct Authority (FCA) not to proceed with its plans to routinely announce enforcement investigations early if concerns have not been addressed after the FCA’s second consultation closes.
• The Committee concluded that the FCA has not made a convincing case for changing its existing powers, which already allow it to announce an enforcement investigation early in exceptional circumstances. Respondents to the Committee’s Call for Evidence pointed to the FCA's lack of evidence to justify the shift.
• If the FCA presses ahead with these changes, it could increase the risk that investigations are announced, reputational damage to firms and individuals occurs, and media speculation arises, but no regulatory action is ultimately taken. The Committee remained unconvinced that the proposed public interest framework would allow for proportionate and consistent decision-making over whether to announce an enforcement investigation early.
• The Committee has singled out the FCA process for criticism, particularly the lack of engagement with financial services firms beforehand and the failure to give any prior warning to the industry that the consultation was forthcoming.
• Lord Forsyth of Drumlean, Chairman of the House of Lords Financial Services Regulation Committee, said:
• “It was incumbent on the FCA to make a strong and unequivocal case for why such a fundamental change was needed and failed to do that.
• Its consultation on the changes has been an abject failure, and even the FCA Chairman acknowledged this has not been the FCA’s "finest hour".
• “Less than 18 months ago, the FCA stated that it recognised that the disclosure of an enforcement investigation could inappropriately damage a firm’s reputation if the investigation did not substantiate the FCA’s concerns.
• We simply could not understand the FCA’s about-turn in such a short period.
• “The FCA told us that the average duration of investigations is around three to four years and in 56 per cent of cases no further action was taken.
• If it presses ahead with its proposals on past performance, it could mean that half of the firms it investigates, and the people involved in them, will have their reputations unnecessarily and unfairly damaged. This is not acceptable.”

The Committee’s other findings and conclusions include:

• The FCA’s consultation prompted an immediate and widespread backlash from across the financial services sector and from legal firms and even drew criticism from the previous Chancellor of the Exchequer. The Committee was concerned at how surprised the FCA was by the reaction its consultation generated and how it demonstrated a disconnect between the FCA’s senior leadership and the sector it regulated.
• Witnesses were worried that the UK was at risk of becoming an international outlier as no other jurisdiction routinely publicises investigations in the way the FCA proposes. The Committee were warned about the potential negative impact of the proposals on the FCA’s secondary growth and competitiveness objective. Fears were expressed that they could undermine the UK’s attractiveness as a place to invest and position the UK as an international outlier.
• Despite being asked to carry out and publish a cost-benefit analysis (CBA), the FCA has thus far refused to do so because it only does CBAs for rules and guidance on regulations. The Committee recommends that the FCA change this policy and practice.

Source

https://www.parliament.uk/business/lords/media-centre/house-of-lords-media-notices/2025/february-2025/lords-report-concludes-that-naming-and-shaming-is-not-the-way-to-regulate/