Therese Chambers gives robust defence of FCA’s new publicity enforcement approach

At a Simmons & Simmons webinar, Therese Chambers made a powerful case for why the FCA remains committed to the publicity proposals.

Therese Chambers, the FCA’s joint executive director of Enforcement and Market Oversight, joined Emma Sutcliffe, head of the Disputes and Investigations Group and Tom Makin, associate at Simmons & Simmons, for a discussion on the FCA’s proposed approach to publicising enforcement investigations, as set out in CP24/2 and CP24/2 Part 2.

The first consultation on the transparency proposals, published in February last year, generated a lot of negative stakeholder feedback. Chambers described it as “a lot of noise and a lot of heat” which she acknowledged “we could have handled better.”

The FCA found that “noise and the heat” made it harder for them to have a constructive engagement with the industry. Hence the second phase of the consultation – CP24/2 Part 2, where they have set out the context of their proposals (they hope) more clearly and given more detail about how it would operate in practice.

Important context

Chambers made it clear these proposals in relation to transparency “are a part of much wider changes in our enforcement approach. We are really keen to increase the pace and the focus of our work,” she said.

She explained that the FCA took an average of 42 months to conclude an investigation. The FCA Board considered that was too long as it impeded deterrence. “We’ve had a number of recent cases publicised towards the end of last year where we’ve been able to conclude our investigations and publish an outcome in 16 months or less.”

In terms of focus in April 2023, after Chambers and Steve Smart were appointed, there were around 220 enforcement operations. There are now less than 150. Chambers said this has been achieved by streamlining in two ways: “Really taking the tough decisions on cases that are possibly not going to achieve an outcome and calling those decisions at an earlier stage. Also, raise the bar for opening investigations so we are consciously opening fewer investigations than we have done historically.”

Our first report looks at why the FCA remain committed to the consultation’s headline proposal – to make public announcements that it has opened an investigation into a firm. The second, published tomorrow, will consider how the proposal will work in practice

Key points

Areas Chambers was keen to address include:

  • The issues around the current approach.
  • The real point of enforcement is to create a deterrent because it is through that means that the FCA can change behaviors across industry rather than simply punish a single wrongdoer.
  • Consideration of the potential negative impact on a firm or individual in the public interest rule.
  • Making reactive statements and providing anonymous disclosures, for example via an “Enforcement Watch”.
  • The meaning of impactful deterrence.

The panel put a number of questions to Chambers, and we’ve reproduced her answers as fully as possible.

What is the problem with your current approach which is couched in terms of ‘exceptional circumstances’?

“Our current approach is in relation to ‘exceptional circumstances’.

“We regulate around 42,000 firms. Under our current approach, we’re opening around 15 investigations a year into regulated firms. (We open more into unregulated firms and I’ll come back to that in a moment.)

“Those 15 cases, taken as a subset of 42,000, will all be exceptional. But that’s not the yardstick that we use in assessing whether a matter is exceptional for the purposes of the test in the law enforcement guide. Instead, what we do is we look at everything else that is in our investigations portfolio and something needs to be exceptional by that yardstick.

“And it is for that reason that we have found this test of ‘exceptional circumstances’ incredibly constraining. So let me give you an example. We opened around 15 cases between April 2023 and the end of 2024. We announced one of those under our exceptional circumstances test and that was our investigation into the London Metal Exchange. Now that was exceptional. We have no other investigations on foot in relation to regulated venues. We have no other investigations in relation to a subject matter that is in any way analogous to the nickel crisis. So that was an exceptional circumstance.

“You’ll have seen from the case studies that we’ve published in the document, that there have been other instances where we have batted up against the exceptional circumstances test and have not been able to make a proactive announcement.

“We’re opening smaller numbers of investigations into regulated firms than into unregulated firms. Over 60% of our investigations into firms take place outside the perimeter, these are firms that do not have FCA authorization. And despite the lack of authorization, they are effectively conducting what amounts to regulated activities. These cases involve significant consumer harm, we tend to investigate and prosecute them as frauds and they are very serious matters.

“They are not exceptional. So at the moment, we can’t say anything about those investigations at all because they simply don’t satisfy the exceptional circumstances test. But our proposals are not just about making proactive announcements in relation to investigations. There are two other aspects that are also really important to understand.

“We don’t wish to prevaricate, so that is a problem that we want to solve.”

Therese Chambers, FCA’s joint executive director of Enforcement and Market Oversight

“So the second aspect is around making reactive statements. Over 50% of our regulated firm investigations come into the public domain. And that is typically because a listed company decides it needs to issue an RNA (regulatory news service announcement) that it is under investigation because that is its assessment of its obligations under the market abuse regulation. And in other instances we see firms announcing the fact that they’re under investigation in their annual report and accounts typically when the investigation has reached a point where they, the firms, can assess that it is appropriate to treat a potential penalty or a potential addressable as a contingent liability.

“One of the peculiarities of our current policy is that even when something is in the public domain put there by the firm, we are not able to comment or confirm that we have an investigation on foot. So when when those announcements are made, and when our press office receives a call, all we are able to say is that ‘we neither confirm nor deny the existence of an investigation’, and to us, that just makes no sense. It looks like we are prevaricating. Also we have to talk with formal Committees of Parliament (they are an important part of our accountability). We don’t wish to prevaricate, so that is a problem that we want to solve.”

“The third is where we feel currently constrained by our policy. It’s in the area of making ‘anonymous disclosures’ about the types of issues and facts, patterns that we have under investigation at the moment.

“We know that our enforcement findings are studied in great detail by practitioners and by firms and know that those findings are often used as the basis for a business case for an internal remediation as a firm.”

Therese Chambers

“Now, I’ve talked about our ambition to increase our pace, but even in those cases, where we are able to conclude and publish our detailed findings in 16 months, that is still a 16-month time delay before the outside world can know anything. A few people have come up with the term Enforcement Watch, inspired by our current Market Watch publication. Not to identify the firms under investigation but the types of issues that we currently have under investigation to give that benefit to the market at a much earlier stage than we are currently able to.

“We know that our enforcement findings are studied in great detail by practitioners and by firms and know that those findings are often used as the basis for a business case for an internal remediation as a firm. That is how our enforcement work contributes to the raising of standards across the industry.

“At the moment we are constrained by the gap in time until we publish our formal findings and that is another of the problems that we would like to solve.”

What about firms outside the regulatory perimeter?

“I’ve referred to the number of investigations that we have outside our regulatory perimeter into unregulated firms. There are particularly acute problems because obviously we have no supervisory tools so we have no other means of dealing with harm other than through an enforcement investigation.

“The breadth of our jurisdiction over regulated firms are, of course, a really important part of our jurisdiction. What happens outside the perimeter is also a really important part of our jurisdiction. What happens in our market abuse, insider dealing, market manipulation investigations are also important aspects.”

Will an increase in supervisory triage lead to more cases of no further action?

“Now we are more conscious of our increased levels of supervisory intervention, we’re also consciously raising the bar. But thats not going to reduce no further action cases to zero because there are many twists and turns in an investigation. What we think we know at the beginning does not always equal what we end up knowing much more firmly at the end.

“We investigate with an open mind, the supervisory history will inform the scope and direction of our investigation, but it does not lead us to predetermined conclusions.”

Has the FCA considered whether the definition of exceptional circumstances could be tweaked?

“We’ve refined our thinking, we’ve tried to give much more clarity about how we think our public interest framework would operate in practice. We welcome all feedback on that. The word exceptional is the challenge. That is why we have proposed a different approach, the word exceptional is an ordinary word in the English language.

“When benefit pension schemes were in the spotlight, it was very hard for us to say that was exceptional. That was why even when a public accounts committee asked us to name the firms that were under investigation, our policy would not allow us to do that. We’re very open to different ways of operating this in practice, but it’s very hard to see a way that can solve the problems we’re struggling with without getting rid of that word exceptional.”

What do you mean by impactful deterrence?

“The purpose of enforcement is to change behavior. So it’s about holding to account the miscreant for their breaches, whether that’s a person or a firm, but it’s also about sending a message more widely. This is the type of behavior that needs to be avoided because if you don’t avoid it, you are at risk of attracting this type of sanction.

“We need to take enforcement cases that will have meaningful outcomes, that are capable of changing behavior. Whether in the industry or beyond our regulated perimeter, because deterrence operates there also.

“If matters can be dealt with perfectly appropriately without coming near enforcement, then that’s great. That’s the system working.”

Therese Chambers

“Why do we send people to jail for many years outside our perimeter? That’s the kind of base thinking around enforcement and deterrent. Enforcement is at the top of the investigation escalation chain. The purpose of raising the bar for enforcement is to make sure that we are correctly identifying those cases that are capable of having a meaningful deterrent effect, that are capable of sending a signal out more widely, that will support the raising of standards.

“If matters can be dealt with perfectly appropriately without coming near enforcement, then that’s great. That’s the system working.”

Interview questions by Tom Makin.