Daniel Valentine is Head of Communications at the Chartered Governance Institute UK & Ireland.
The Financial Conduct Authority (FCA) has just concluded a consultation on its proposal to amend its prosecution policy in relation to organisations. Going forward, the FCA intends to publish more information about enforcement investigations, including announcing the commencement of such investigations and issuing progress reports as they proceed.
In the new process, the FCA would retain total freedom to announce that it has opened an enforcement investigation, including naming firms under investigation, and giving firms no more than one business day’s notice of the investigation.
This is a major shift from the current policy of only naming organisations at the conclusion of investigations.
The FCA claims that announcing investigations will “enhance public confidence” and will amplify “the educational and deterrent effect of our enforcement”. Translating this Orwellian doublespeak into English, it wants to discard traditional prosecutorial caution, and instead use prosecutions as a form of publicity, pour encourager les autres.
In reality, the FCA is proposing to create a process akin to auto-da-fé, the ritual of public penance used during the Spanish inquisition. Subjects will be publicly accused, and subjected to a lengthy period of suspicion (aggravated by regular “updates”) before the FCA ends their misery with an outcome.
This is a very worrying proposal, given how long such investigations typically take – and the high proportion which are terminated with no further action.
There are many lessons to be learnt from the Post Office horizon scandal; lessons for judges, lessons for politicians, lessons for regulators, lessons for business leaders, and even a few lessons for journalists.
But the central lesson for public bodies must surely be that prosecutions can have a very destructive effect on the innocent, and therefore must only be initiated after a careful assessment of the evidence. The FCA seems to be the only public body in the UK which has failed to learn the core lesson from the Horizon Scandal.
The FCA has not published adequate reasoning for this major shift in approach. It claims that it wants to increase “public transparency”, but our concern is that it could also be a shift towards guilt-by-accusation. The current Investigation Opening Criteria are inadequate for this new approach, because it currently operates to a very low bar of evidence when initiating an investigation, described by the FCA as “circumstances suggesting” and “good reason to be concerned”.
We at the Chartered Governance Institute are also concerned that the new approach could provoke a substantial increase in spurious accusations, as the impact of false accusations will be magnified
Many of the FCA’s investigations come to nothing. But whilst the FCA itself can easily move on, the subjects of investigations can often not; because their reputations have been permanently tarnished by the suspicion aroused by being investigated. Reputation matters, and the FCA is not showing sufficient understanding of the importance of reputation in financial markets, or of the principles of justice.
In any case, given how few cases are dealt with by the FCA, in comparison with the scale of the market as a whole, the argument that this new procedure will produce a deterrent effect is rather overdone.
We suggest a more formal process is undertaken before subjects are identified, akin to the charging process used by the police, so that a balance is struck between public awareness and justice to the accused.
