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FCA under pressure to abandon plans to name firms in UK deterrence drive

Britain’s top financial regulator on Monday faced mounting pressure to abandon its plan to “name and shame” companies under investigation, with claims the move would undermine the City of London and unfairly tarnish reputations.

Bim Afolami, City minister, said the Treasury was engaging with the Financial Conduct Authority over its plan, amid growing concerns in government circles that the regulator is undermining competitiveness.

Meanwhile, senior parliamentarians wrote to Nikhil Rathi, FCA chief executive, warning the plan could damage the City and individuals and accusing the regulator of failing to assess its likely impact.

The FCA is consulting on a proposal to name companies under investigation more frequently and at a much earlier stage, with the aim of creating more transparency and to increase the deterrent effect.

The regulator has caused increasing irritation in government circles, amid fears the City is losing ground to rival financial centres such as New York. One senior Conservative MP said: “The FCA are a massive deadweight on the competitiveness of the UK.

“I know that Treasury ministers tried to rein them in but there are thousands of them dreaming up new ways to burden firms. When the history of the decline in London listings is written instead of RIP it will say FCA.”

Afolami said the FCA had drawn up the plans independently, but noted: “We are engaging with both the FCA and industry as the proposals are developed, in particular to ensure that any potential impacts on competitiveness are properly considered.”

Meanwhile, the House of Lords financial services regulation committee wrote to Rathi to demand answers about the plan, including questioning the absence of a cost-benefit analysis. The committee is expected to launch an inquiry into City regulation next month.

The peers said the proposal risked “having a disproportionate effect on firms named in investigations” and risked the overall integrity of the market, including through “unwarranted impacts on share prices”.

Lord Michael Forsyth, a former Conservative cabinet minister, said the plan could have “a highly negative impact” on companies named as being under investigation which were subsequently cleared.

“Despite having done nothing wrong, those firms — and those individuals associated with them — risk having their reputations tarnished,” he said.

Miles Celic, chief executive of TheCityUK, described the proposal as a “name and shame” policy and said the financial services industry was opposed to it.

The FCA said in a statement: “We know that our actions can influence productivity and therefore international competitiveness and growth. Having clean markets where misconduct is punished is a key part of attracting firms who want to operate here.”

The regulator doesn’t have a statutory obligation to do a cost-benefit analysis on the proposal because the policy doesn’t affect its rules, according to an FCA official.

Responding to the criticism, Rathi said in a speech on Monday that the regulator was not approaching the initiative as a naming and shaming exercise.

“Some City trade bodies have characterised this as ‘naming and shaming’ that would undermine competitiveness. That is not how we think about it,” Rathi told the Digital Regulation Cooperation Forum, a voluntary forum which aims to support co-operation between its members, according to a draft of the speech.

Rathi cited the FCA’s 2022 decision to issue a warning about the crypto firm FTX, whose founder was sentenced to 25 years in a US prison in March, before any enforcement action had been considered.

The backlash over the FCA’s proposal has also raised questions about how much it will serve the regulator’s own interests. By making investigations public, the watchdog will open itself up for criticism and commentary on cases, according to lawyers.

“I think there is a growing realisation that this is not in anyone’s best interests, including the FCA’s,” said Nathan Willmott, a partner at Ashurst who advises firms on regulatory actions. “By announcing investigations earlier, the regulator will be inviting a debate about the merits of every case, which it then won’t be able to respond to.”

Lawyers have also expressed concerns that a company will be tarnished with whatever the FCA initially accuses it of, despite the fact that the regulator often starts its probes with a wider set of allegations than those it ultimately brings enforcement action over.

This, combined with the fact that 65 per cent of FCA cases close without action, undermines the justification that the proposal is acting as a deterrent for misconduct, lawyers say.

The move is out of step with the approach of a number of the UK regulator’s international counterparts, including the US Securities and Exchange Commission and the German financial regulator BaFin. Neither agency announces enforcement measures until they are concluded.

The FCA has said the new approach is consistent, however, with other regulators including the UK Competition and Markets Authority and the Monetary Authority of Singapore, who do name companies under investigation in some circumstances.

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