In just over a week the Financial Conduct Authority's consultation on its proposals to name firms it is investigating, at the start of the process, closes.
Over the past few weeks, many advisers in financial services, as well as Whitehall, have been sharing notes and come to the conclusion that it is a fundamentally bad proposition.
Nathan Willmott, dispute resolution partner at law firm Ashurst, says: "This is damaging to the competitiveness of the financial system. One of the priorities of the FCA is to promote the financial services system; it will undermine confidence in the financial system more generally."
Yesterday, the House of Lords financial services regulation committee said it "risks the overall integrity of the market and possible unwarranted impact on blameless firms", and asked for the consultation to be paused while it looks into it.
The FCA revealed its proposals late February, and has since extended its consultation by a couple of weeks, while the chief proponent of the plans, Therese Chambers, joint head of enforcement at the FCA, has been discussing the plans with trade associations and other interested parties through various means, including webinars.
The chief complaint many have is that the FCA is planning to name firms once it has opened an investigation, and at present give 24 hours notice of doing so.
In consultation paper CP24/2, the FCA says: "We want to proactively publish more information about our enforcement investigations, including their opening and progress. This includes publishing the identity of the subject of the investigation, if we assess that it is in the public interest to do so and if there are no compelling legal or other reasons not to."
It goes on to say that if there is no case to answer, then it will also make an announcement telling the public that there is nothing wrong after all.
Reputational damage
It is this first element that the law firms and trade associations have a problem with.
Sona Ganatra, co-head of the financial services department at law firm Fox Williams, says: "Immediately there's a reputational hit – this is before the regulator has had a chance to interview or consider its case, and once it's out in the market it's very difficult to move back."
Under the current rules there are quite clear statements about publishing firms' or individuals' names during the enforcement process.
Currently, the FCA may receive a complaint, it will investigate it and take a view as to whether there has been a rule breach.
Its investigation will involve interviewing people, and consider the evidence, and if it decides something has gone wrong it will issue a warning notice, considered to be the first step in its decision over a firm, where the FCA is planning on taking action.
Under section 6.2, the enforcement guide discusses making it public. It says that the FCA will liaise with firms involved, discussing the potential impact of naming them, and giving them an opportunity to "provide clear and convincing evidence of how that unfairness may arise and how [it] could suffer a disproportionate level of damage".
