Nicola Sharp and Syedur Rahman explain how changes to the

way the FCA investigates cases will make it easier for companies and

individuals to negotiate the best possible outcome.

For years, the process of enforcement operated by the

Financial Conduct Authority (FCA) was criticised for being too tilted in favour

of the investigators.

It was argued that firms and individuals under investigation

were under too much pressure to admit wrongdoing as early as possible in order

to receive a 30% discount on the fine imposed. Critics said that this gave too

much power to the FCA’s Enforcement Division; often at the expense of a fair

outcome.

That, however, is changing. The FCA has made changes to its

enforcement process. These changes, we believe, will boost the chances of firms

and individuals being able to enter into negotiations with the FCA and secure

the most favourable possible result.

Change

The major change that has been announced by the FCA is

focussed on how it will work with those it investigates.

Instead of having to admit wrongdoing to receive the 30%

discount on the settlement fine, firms and individuals will still be able to

obtain it while also contesting parts of the case. This can now involve making

representations to the Regulatory Decisions Committee (RDC), an independent

panel within the FCA that is independent of its Enforcement Division.

Until now, firms and individuals who were subject to FCA

enforcement actions could obtain the 30% settlement discount on their fine if

they settled their case within Stage 1. Stage 1 is a 28-day period that starts

when they receive a draft Warning Notice from the FCA.

If no settlement was reached during Stage 1, there was still

the possibility of obtaining a 20% discount during Stage 2. Stage 2 ended on the last day for making

written representations to the FCA in response to the Warning Notice. There was

a last chance to obtain a 10% fine discount if a settlement was reached by the

date that the Decision Notice was published.

Resolution

The new process keeps the Stage 1 settlement period. But the

crucial difference is that it introduces what is called a Focussed Resolution

Agreement. This means that the firm or individual being investigated and the

FCA can agree on some aspects of the case early in the investigation but can

disagree on others.

Unlike previously, the subject of the investigation can

still retain a proportion of the settlement discount even though they have not

reached agreement with the FCA on all aspects of the case.

The amount of discount available will vary, depending on the

way the case proceeds. There will be a 30% discount if the facts and breach are

agreed on and only the penalty is disputed.

If the subject disputes both the fact that there was

wrongdoing and the size of the penalty, the discount will be between 15 and 30%.

This figure will depend on how much agreement there is between the FCA and the

company or person being investigated.

Negotiations

There will still be cases where those under investigation

are far from satisfied with the outcome, but this process change will be a huge

help to companies and individuals who believe they have much to gain from

entering into negotiations with the FCA. Previously, they may have abandoned

the chance to make such representations in exchange for a quick settlement and

a discounted fine.

Now, the new procedure offers them a chance to not only

negotiate a settlement deal – it also gives them the opportunity to do this

without any fear of it costing them a reduced penalty.

FCA enforcement investigators have often been thought to

take on a new case with a definite belief in the outcome they would achieve.

That, thankfully, is now less likely to be the case.

But a firm or individual that is under investigation and

wants to challenge the FCA’s assumptions and negotiate still has to appoint the

right defence team.

Favourable

This has to be a team that can examine everything that the

FCA proposes to use as evidence to back up its case. It must be a team capable

of finding ways to question certain aspects of the FCA’s assumptions and make

informed, persuasive representations to secure a favourable, negotiated

settlement.

Ideally, a defence team will produce evidence that counters FCA

claims and enhances the likelihood of a settlement being reached between the

two parties.

It is likely that any FCA allegations may involve a large

paper or digital trail. A thorough examination and analysis of all material in

this trail may provide the means for identifying evidence and arguments that

can convince the FCA that it may be in its interest to agree a settlement that

is more lenient than it had originally anticipated.

The new process, therefore, offers great potential for those

looking to challenge assumptions made about them by the FCA.

But such a challenge can only be successful if it is placed

in the hands of those with the relevant expertise.