Nicola Sharp and Syedur Rahman explain how changes to the
way the FCA investigates cases will make it easier for companies and
individuals to negotiate the best possible outcome.
For years, the process of enforcement operated by the
Financial Conduct Authority (FCA) was criticised for being too tilted in favour
of the investigators.
It was argued that firms and individuals under investigation
were under too much pressure to admit wrongdoing as early as possible in order
to receive a 30% discount on the fine imposed. Critics said that this gave too
much power to the FCA’s Enforcement Division; often at the expense of a fair
That, however, is changing. The FCA has made changes to its
enforcement process. These changes, we believe, will boost the chances of firms
and individuals being able to enter into negotiations with the FCA and secure
the most favourable possible result.
The major change that has been announced by the FCA is
focussed on how it will work with those it investigates.
Instead of having to admit wrongdoing to receive the 30%
discount on the settlement fine, firms and individuals will still be able to
obtain it while also contesting parts of the case. This can now involve making
representations to the Regulatory Decisions Committee (RDC), an independent
panel within the FCA that is independent of its Enforcement Division.
Until now, firms and individuals who were subject to FCA
enforcement actions could obtain the 30% settlement discount on their fine if
they settled their case within Stage 1. Stage 1 is a 28-day period that starts
when they receive a draft Warning Notice from the FCA.
If no settlement was reached during Stage 1, there was still
the possibility of obtaining a 20% discount during Stage 2. Stage 2 ended on the last day for making
written representations to the FCA in response to the Warning Notice. There was
a last chance to obtain a 10% fine discount if a settlement was reached by the
date that the Decision Notice was published.
The new process keeps the Stage 1 settlement period. But the
crucial difference is that it introduces what is called a Focussed Resolution
Agreement. This means that the firm or individual being investigated and the
FCA can agree on some aspects of the case early in the investigation but can
disagree on others.
Unlike previously, the subject of the investigation can
still retain a proportion of the settlement discount even though they have not
reached agreement with the FCA on all aspects of the case.
The amount of discount available will vary, depending on the
way the case proceeds. There will be a 30% discount if the facts and breach are
agreed on and only the penalty is disputed.
If the subject disputes both the fact that there was
wrongdoing and the size of the penalty, the discount will be between 15 and 30%.
This figure will depend on how much agreement there is between the FCA and the
company or person being investigated.
There will still be cases where those under investigation
are far from satisfied with the outcome, but this process change will be a huge
help to companies and individuals who believe they have much to gain from
entering into negotiations with the FCA. Previously, they may have abandoned
the chance to make such representations in exchange for a quick settlement and
a discounted fine.
Now, the new procedure offers them a chance to not only
negotiate a settlement deal – it also gives them the opportunity to do this
without any fear of it costing them a reduced penalty.
FCA enforcement investigators have often been thought to
take on a new case with a definite belief in the outcome they would achieve.
That, thankfully, is now less likely to be the case.
But a firm or individual that is under investigation and
wants to challenge the FCA’s assumptions and negotiate still has to appoint the
right defence team.
This has to be a team that can examine everything that the
FCA proposes to use as evidence to back up its case. It must be a team capable
of finding ways to question certain aspects of the FCA’s assumptions and make
informed, persuasive representations to secure a favourable, negotiated
Ideally, a defence team will produce evidence that counters FCA
claims and enhances the likelihood of a settlement being reached between the
It is likely that any FCA allegations may involve a large
paper or digital trail. A thorough examination and analysis of all material in
this trail may provide the means for identifying evidence and arguments that
can convince the FCA that it may be in its interest to agree a settlement that
is more lenient than it had originally anticipated.
The new process, therefore, offers great potential for those
looking to challenge assumptions made about them by the FCA.
But such a challenge can only be successful if it is placed
in the hands of those with the relevant expertise.