The media frequently features action by the Financial Conduct Authority (FCA) against finance companies that have breached their regulations, some of which are extremely high-profile. In February 2022, the FCA fined Barclays Bank Plc £783,000, however, this pales into insignificance when compared to the fine of £264,772,619.95 levied on National Westminster Bank Plc in December 2021. Since the global financial crisis in 2008, financial organisations have faced an ever-increasing amount of regulatory pressure and scrutiny. More recently, the UK’s FCA has been facing new pressures in the form of regulating crypto-asset businesses. This has led to a considerable push to force such businesses to formally register and conform to a regulatory regime. Facing investigation and prosecution by the FCA not only poses a risk of considerable financial loss and criminal action for financial companies and their directors and other senior members, but it can also inflict considerable reputational harm, impacting on investor and shareholder confidence. Here, we will take a closer look at the role of the FCA and their legal powers.
What is the Financial Conduct Authority (FCA)?
The FCA is responsible for ensuring the proper conduct of all firms authorised under the Financial Services and Markets Act 2000 (FSMA) (the Act). Under this remit, they regulate the conduct of retail and wholesale financial markets, supervise the trading infrastructure underpinning retail and wholesale financial markets, and have responsibility for the prudential regulation of firms that are not regulated by the Prudential Regulation Authority (PRA). As of March 2022, the FCA regulates the conduct of over 50,000 businesses, in addition to the prudential oversight of another 49,000 firms and setting regulatory standards for around 18,000 firms.
The three main tasks of the FCA are to:
- Authorise – before they are permitted to operate in the UK market, financial services providers, investment firms, and consumer credit firms are all required to apply and gain authorisation from the FCA.
- Supervise – to ensure fair and honest conduct by UK regulated financial firms
- Enforce – to take action where financial firms breach the FCA’s rules.
What are the investigative powers of the FCA?
While the FCA doesn’t wield all of their investigative powers for every matter referred to it, it is important to understand the range of powers provided to them by the Act. The investigative powers of the FCA include:
Power to require information and documents from firms
Under section 165 of the Act, the FCA is able to request information to support both its supervisory and its enforcement functions.
Power to require reports by “Skilled persons”
Under section 166 of the Act, the FCA possesses the legal power to require a firm or individual under investigation to provide a report prepared by a suitably skilled person. It also has the power to appoint a skilled person to produce such a report.
The power to gather information and appoint an investigator
Section 167 of the Act states, “If it appears to an investigating authority that there is good reason for doing so, the investigating authority may appoint one or more competent persons to conduct an investigation”. Such investigations can focus on the:
- nature, conduct or state of the business
- a particular aspect of the business, or the
- ownership or control of a recognised investment exchange (RIE) or an authorised person.
If there are specific and serious concerns of a breach or contravention of a rule, principle or the fitness or propriety of an individual, FCA investigators will act under Section 168 of the Act. Depending on the section of the Act under which the investigator is acting and the circumstances of the case, notice of the investigation may be given. Those under investigation by the FCA in accordance with section 168(2) of the Act may not receive any form of notice, and the first they will be aware is when requested to provide documents.
The key is that even if you have not been formally given notice of a pending or ongoing FCA investigation if you have any concerns that you may be, it is important to engage the services of a regulatory investigation Solicitor as soon as you possibly can.
The power to search and seize documents or information
Under sections 176 and 122D of the Act, the FCA can apply for a warrant to enter premises to search and seize documents pertaining to an investigation. This may take the form of a “dawn raid”.
What are the enforcement powers of the FCA?
The FCA has a wide range of enforcement powers under the Act, including to:
- withdraw a firm’s authorisation
- prohibit specific individuals from conducting regulated activities
- suspend firms and individuals from regulated activities
- issue fines where there has been a breach of their rules or if they commit market abuse
- issue fines for breaches of competition laws
- making a public announcement on disciplinary action
- apply for injunctions, restitution orders, winding-up and other orders
- bring criminal prosecutions where there is sufficient evidence of financial crime
- issue warnings and alerts about unauthorised firms and persons
By taking a measured and cooperative approach with the FCA at all times, with the support of expert legal assistance, it is possible to reduce the potential for or severity of any penalty levied by the FCA.
rAISING THE bAR FOR THE fINANCIAL sECTOR
The words and actions of the FCA in recent years make it clear that they intend to continue to raise the bar on the conduct of the financial sector. This represents a positive step for the sector overall and will help to boost overall confidence levels. It also means more penalties for inadvertently breaching the rules. This is why it is so important to engage an experienced regulatory Solicitor as soon as possible if you believe you may be under investigation, or if you have been asked to cooperate with the FCA. By doing so, you can be assured of having an expert by your side at each step of the process who will ensure the best possible outcome for you, your company, and your key stakeholders.
If you are facing an investigation or prosecution by the Financial Conduct Authority, our specialist regulatory Criminal Law Barristers and Solicitors can help. You can contact us through our contact page here.