The Financial Conduct Authority (FCA) has updated the criteria and outlined the process it uses when deciding whether to refer a firm or individual to its enforcement division for a formal investigation.
Where misconduct is proved, an enforcement investigation can lead to fines, bans and suspensions. But enforcement is only one of a range of tools available to the FCA. The process clarifies how the FCA decides which regulatory tool is the most likely to fulfil its objectives in each individual case.
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said: “Enforcement is not the only tool at our disposal where we see misconduct by firms or individuals, nor is it the most appropriate one to use in every case. Today’s publication will make our decision making process more transparent. Firms and the public will now have a clearer understanding of the questions we ask ourselves before we start a formal investigation.”
When deciding whether to investigate, the FCA considers the following three overarching questions:
- Is an enforcement investigation likely to further the FCA’s aims and statutory objectives?
- What is the strength of the evidence and is an enforcement investigation likely to be proportionate?
- What purpose or goal would be served if the FCA were to take enforcement action in this case?
In December 2014, HM Treasury published a review of the enforcement decision making process at the FCA and Prudential Regulation Authority. As a result of that review, the FCA committed to publishing updated referral criteria and to set out more clearly the process by which decisions to refer cases to enforcement are taken.
The FCA will publish a consultation paper later this year setting out how we plan to implement other recommendations made in the review.
In addition to publishing the referral criteria for enforcement investigations, the FCA has also today set out more detail about how it decides on which regulatory response is best suited to a case. This involves assessing whether a referral for an enforcement investigation is appropriate before a final decision is made by relevant senior staff.
The FCA has also made clear that by opening an investigation, it does not mean it has decided that a breach has been committed. Nor does it mean that it has decided what type of enforcement action to take, if any, should it turn out that there has been a breach.