A Closer Look at CP24/2 and Its Revisions
In February 2024, the UK’s Financial Conduct Authority (FCA) unveiled Consultation Paper CP24/2, proposing significant changes to its Enforcement Guide. The primary aim was to increase transparency by publicly announcing the commencement of enforcement investigations. This initiative intended to bolster market integrity and deter potential misconduct.
Key Proposals in CP24/2:
- Public Disclosure of Investigations: The FCA proposed to publicly announce when it initiates an enforcement investigation, marking a shift from its previous practice of confidentiality until the conclusion of such investigations.
- Public Interest Test: A framework to assess whether disclosing an investigation serves the public interest, considering factors like market integrity and consumer protection.
- Notice Period: Firms under investigation would receive a brief notice period before public disclosure, allowing minimal time to prepare for potential reputational impacts.
Industry Feedback and Concerns:
The initial proposals sparked considerable debate within the financial services sector. Key concerns included:
- Reputational Damage: Public announcements of investigations, regardless of outcome, could unjustly tarnish a firm’s reputation.
- Market Stability: Premature disclosures might lead to unwarranted market volatility and erode investor confidence.
- Due Process: Firms highlighted the need for adequate time to respond to the FCA’s intentions, ensuring fairness in the investigative process.
Introduction of CP24/2 Part 2:
In response to the feedback, the FCA released CP24/2 Part 2 in November 2024, refining its initial proposals to address industry apprehensions.
Revised Proposals in CP24/2 Part 2:
- Enhanced Public Interest Test: The FCA will now explicitly consider the potential negative impact on a firm when deciding to announce an investigation, ensuring a balanced approach between transparency and fairness.
- Extended Notice Period: Firms will be given a 10-business-day notice before any public announcement, an increase from the initially proposed one-day notice. This extension allows firms to prepare and make representations.
- Additional Consideration for Market Confidence: The FCA will assess whether an announcement could seriously disrupt public confidence in the financial system or markets, opting for discretion when necessary to maintain stability.
- Scope Limitation: The FCA clarified that it will not proactively announce investigations initiated before the new policy’s implementation, though it may confirm such investigations if they are already public knowledge and if doing so serves the public interest.
Implications for Firms and Stakeholders:
These revisions demonstrate the FCA’s commitment to transparency while acknowledging the legitimate concerns of firms. The extended notice period and nuanced public interest test aim to protect firms from undue reputational harm and ensure that market stability is not compromised.
Next Steps:
The FCA is seeking further feedback on these revised proposals until 17 February 2025. Stakeholders are encouraged to review the detailed consultation paper and provide their insights to help shape the final policy framework
