The FCA and the PRA have together opened a consultation on a number of proposed changes to the current enforcement decision-making process and consequent proposed amendments to the FCA's Enforcement Guide ("EG") and Decision Procedure and Penalties Manual ("DEPP").
The proposals, set out in FCA CP16/10, incorporate recommendations made in HM Treasury's "Review of enforcement decision-making at the financial services regulators" published 18 December 2014 (the "HMT Review") and in Andrew Green QC's Report into the FCA's enforcement actions following the failure of HBOS published 19 November 2015 (the "Green Report").
We summarise the main proposals:
Enhanced transparency of decision-making criteria
- EG to be amended to reflect the FCA's new referral criteria and case selection approach published in July 2015 as a response to recommendations made in the HMT Review.
- In order to provide greater clarity in relation to the decision whether to extend the deadline for responding to a Preliminary Investigation Report or a Warning Notice, DEPP to be amended to include some of the factors that the FCA might take into account when considering such a request (which might include the legal and factual complexity of the case and any other circumstances outside the subject's control).
Information provided to subjects of investigation during the enforcement process
- The FCA to provide, at the same time as the Memorandum of Investigation is issued, a written summary of the alleged breaches and the matters giving rise to them together with an explanation of the criteria applied in taking the decision to refer the matter to enforcement.
- It is the FCA's usual practice to hold scoping meetings at a very early point in the enforcement process. It is proposed that they be held at a slightly later stage in order to provide subjects and their advisers with more information about the proposed direction and timetabling of the investigation.
- Amendment of the EG to set out the FCA's "aim" to provide periodic updates to the subjects of investigation and their advisers on an at least quarterly basis.
- The FCA to aim to give subjects 28 days' notice of the commencement of Stage 1 and to offer pre-Stage 1 preliminary without-prejudice meetings. This would not mark the beginning of settlement discussions but rather provide the subject with a summary of the key legal and evidential bases of the FCA's case.
- In partly-contested cases (where the subject accepts liability but the level of penalty is disputed), the FCA proposes to make available a "focused resolution agreement" by which the subject accepts the factual basis of the FCA's and liability, but wishes to contest the penalty before the Regulatory Decisions Committee ("RDC"). Where such an agreement is entered into at Stage 1 a fixed discount of 30% would apply.
- In addition to the "focused resolution agreement", the FCA has considered two alternative types of settlement agreement: "Alternative 1", in which the subject agrees all relevant facts but disputes liability (and penalty); and "Alternative 2" in which the subject wishes to agree some but not all of the issues in the proposed enforcement action.
- It is proposed that the discounts currently offered for settlement at Stages 2 and 3 (20% and 10% respectively) be abolished.
The consultation period closes on 14 July 2016.