The Financial Conduct Authority (FCA) has continued to face a backlash over its plans to ‘name and shame’ firms, under which the regulator would change its approach to publicising enforcement action.

In its initial consultation in February 2024, the FCA outlined proposals that would shift its approach from ‘exceptional circumstances’ to ‘public interest’ when assessing whether an investigation into a financial services firm should be announced in the early stages.

However, these plans were met with widespread opposition, and the FCA published a revised consultation in November 2024 that would include additional factors for the public interest test and extend the notice period for firms to make representations to the FCA.

While the Financial Services Regulation Committee welcomed the FCA’s willingness to listen to feedback and revise its proposals, it remained "deeply concerned" about what had happened over the course of the process.

"We are clear that we recognise that it is important that consumers are given the information they need to make informed decisions and that it is crucial they are protected from wrongdoing," it stated.

"The FCA clearly felt that a change in its processes was required to enable it to provide greater transparency to consumers about its enforcement investigations.

"In our view, the FCA has not yet made a convincing case for why a change to its existing powers, which allow it to announce an enforcement investigation early in exceptional circumstances, is required."

These concerns were echoed by commercial partner at Spencer West LLP, Karl Foster: "Given the pace of innovation and product development in today’s financial services environment, together with the complexity of regulatory compliance, the FCA’s plan to routinely name and shame perversely threatens the transparency and cooperation of firms that it seeks to foster stronger relationships with," he warned.

"This new approach to public interest is fundamentally designed to strengthen deterrence and encourage whistleblowers to come forward however, in pursuing these plans to name and shame will mean firms will be less inclined to engage with the regulator in a collaborative manner at an early stage in fear of negative publicity."

In its response to the latest consultation, the Alternative Investment Management Association (AIMA) outlined “serious concerns” and proposed an alternative path where the FCA’s disclosure powers should be limited to cases where: Unregulated firms' activities pose immediate mass-market harm; an investigation is already public knowledge; or consumer protection requires the publication of anonymous investigations where significant harm to retail clients and investors is likely.

"The FCA's revised name and shame proposals have merely tweaked the wording of its widely criticised consultation and failed to address the core concerns raised by AIMA and the wider financial community,” said chief executive officer at AIMA, Jack Inglis.

"If implemented, these proposals still risk damaging the reputations of innocent firms and individuals and could make the UK a less attractive place to do business, directly undermining the UK government's mandate to drive economic growth and strengthen the country's status as a global financial hub.

"We also side with the House of Lords Financial Services Regulation Committee's recent report, which urges the FCA not to proceed with the proposals as they stand."

Meanwhile, spokesperson at The Investing and Saving Alliance, Lisa Laybourn, said the organisation was concerned that there may be "significant unintended consequences" if disclosure around FCA investigations shifted to a public interest test.

"This move could introduce unfairness and external pressures into the process, cause reputational damage to firms and employees, and reduce the competitiveness of the UK as a destination for financial service investment," she continued.

"Crucially, there is a risk that consumers may be adversely affected as they may make judgments and decisions in reaction to a ‘naming’ before the investigation has been concluded and any follow actions decided.

"Rather than rewriting the entire process, we believe that the FCA should use the tools already in its arsenal to protect consumers, hold firms to account and ensure the UK remains competitive on the global stage.

"Reviewing the current interpretation of the ‘exceptional circumstances’ test and making smaller changes to enforcement guidance would allow for a more balanced approach, both protecting consumers and mitigating risks to the financial service market."

---