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 outcome.
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 settlement.
Ideally, a defence team will produce evidence that counters FCA claims and enhances the likelihood of a settlement being reached between the two parties.
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.