The City’s lobbying battalion in full cry is something to behold. Witness the furious response from the banking and finance industry to a proposal from the Financial Conduct Authority (FCA) to name firms under investigations occasionally – specifically when it thinks the public interest would be served.
One regulatory aim is to improve behaviour in an industry that, let’s face it, doesn’t have an unblemished record. From the noise heard from the lobbyists, you’d almost think the FCA was suggesting banging up all the chief executives on the spot, as opposed to striking a modest blow in favour of transparency when a clear case can be made.
UK Finance, the umbrella trade body for the industry, thinks publicly disclosing the identity of a company under investigation – something that is normal in many other regulatory fields – “could be harmful to wider financial stability”. It has terrible visions of false markets, share trading suspensions, litigation, general disruption and more.
The financial industry also has the ear of the chancellor, especially now that the FCA has a secondary duty to promote UK growth and competitiveness alongside its day job of protecting consumers and the financial system. “I hope they re-look at their ‘naming and shaming’ decision because it doesn’t feel consistent with that new secondary growth duty that they have,” Jeremy Hunt told the FT last month in a comment that was highly unusual, because the FCA is meant to be an independent regulator.
Is the FCA’s idea really such a shocker? Is it an offence against natural justice and the presumption of innocence? Not really. It all depends on where the “public interest” bar is set for disclosure of an investigation.
In front of the Treasury select committee on Wednesday, the FCA chief executive, Nikhil Rathi, offered an excellent example of where the City regulator’s current “exceptional circumstances” powers on disclosure are not fit for purpose. At British Steel, the FCA was unable to publish the names of unscrupulous financial advisers who were fleecing redundant workers by giving them rotten pension advice. Early disclosure of the FCA investigation might have meant a smaller scandal.
Or try another illustration to the Treasury committee. Of the 26 investigations opened by the FCA last year, one concerns a company that has already disclosed in an overseas market that the FCA, among other regulatory authorities in multiple countries, may be investigating it. But the FCA itself has not named the company, even though, it says, the firm is subject to public enforcement actions elsewhere and “entities that are part of this group have several million UK customers”. This, reckons the FCA, could be the type of the case where disclosure might be justified. It is impossible to form a firm view on the sketchy available details, but the FCA is making a fair point: there will be examples where putting a few high-level facts in the public domain can act as a deterrent.
It is why UK Finance and the chancellor should calm down. The FCA clearly has no intention of creating a run on a bank, or of jeopardising a criminal investigation. On the plus side, disclosure might encourage whistleblowers and others to come forward with evidence, which might shorten the current four-year average length of an FCA investigation. Used sparingly, disclosure has a place.
One hopes the chancellor’s intervention doesn’t kill the FCA’s consultation stone dead. The new secondary duty of the City regulator to promote UK competitiveness was never meant to be a weapon for the financial services industry to oppose any pro-consumer reforms it doesn’t like. More transparency – with the “public interest” bar set fairly high and cases judged on their merits – is a reasonable idea.
