Last month, the United Kingdom Financial Conduct Authority (FCA) announced that it is considering new procedures under which it would publicly identify firms that are under investigation as soon as the investigation has been opened.¹ The consultation period closes on April 30, 2024. (See our recent client alert here). The proposed new approach—which, if adopted, would be a dramatic break from historical practice—would result in public disclosure before any charges have been filed and before the FCA has determined whether the firm actually did anything wrong. In this article, we draw comparisons between the investigation disclosure regimes in the U.K. and the United States. We also provide commentary on the FCA’s proposals.

U.K. Approach to Disclosure of Investigations

In the U.K., the FCA’s current approach is to publish information about active investigations only in “exceptional circumstances.” Accordingly, it is not generally until the conclusion of an investigation, and upon a formal determination of wrongdoing, that the FCA will publicize information about the investigation and its findings. This information will typically be contained in a Decision Notice on the FCA’s website and a related press release.

Notwithstanding some recent instances of the FCA making announcements about ongoing investigations, public communications on investigations have been infrequent and uncontroversial. For example, after a firm issued a public disclosure announcing that it had been issued a draft Warning Notice, the FCA confirmed the same in a press release.²

The new FCA proposal, contained in the Consultation Paper that invites public comment, would mark a radical departure from current practice. The FCA proposes to:

1. Make a public announcement that it has opened an investigation into a firm with details including the name of the firm, ordinarily with one business day’s notice to the firm.
2. Publish updates on the investigation, including closure.

In addition, the Consultation Paper includes proposed amendments to the FCA’s Enforcement Guide to remove material that no longer reflects current practice (e.g., references to private warnings and preliminary findings letters).

In the Consultation Paper, the FCA asserted that these proposed changes would have “significant benefits,” all of which were articulated from the perspective of the FCA as opposed to the firm under investigation. For example, the FCA posited that early public disclosure of investigations would help to build trust in the system, let the public know the FCA is “on the case” and support the FCA’s accountability by “shining a light on the efficiency and pace of [its] investigations.” The agency also asserted that if it identifies the types of potential misconduct that warrant a formal investigation, other firms will “learn lessons, raise their standards and think twice about doing the same at a much earlier stage than currently.”³

As outlined in the Consultation Paper, in any particular case, the FCA would evaluate a series of non-exhaustive factors before making a public disclosure, including: (a) protecting the interests of customers, consumers or investors; (b) encouraging whistleblowers or witnesses to come forward; (c) addressing public concern or speculation and providing reassurance that the FCA is taking appropriate action; (d) deterring future breaches; and (e) protecting and enhancing the integrity of the UK financial system.⁴ Notably absent from this list of factors is any balancing standard to take into account potential harm or unfairness to the firm under investigation.

At least at present, the FCA is proposing to make public disclosure only regarding firms that are under investigation, and not regarding individuals.⁵

U.S. Approach to Disclosure of Investigations

In the U.S., there is a longstanding and widely-accepted tradition of treating investigations as confidential until the time at which a charge is filed in court. This approach includes both criminal and civil enforcement proceedings, and it applies equally to firms and individuals.

For example, under Rule 6(e) of the Federal Rules of Criminal Procedure, the government is strictly prohibited from making any public disclosure of matters occurring before a grand jury, except in narrow circumstances and with prior judicial approval. Consistent with this rule of law, the U.S. Department of Justice (DOJ), which investigates criminal corporate misconduct, rigorously protects the confidentiality of its investigations and work, which involves “non-public, sensitive matters.”⁶  As explained in the DOJ’s Justice Manual, “[d]isseminating non-public, sensitive information about DOJ matters could violate federal laws, employee non-disclosure agreements, and individual privacy rights; put a witness or law enforcement officer in danger; jeopardize an investigation or case; prejudice the rights of a defendant; or unfairly damage the reputation of a person.”⁷ Absent exceptional circumstances, the DOJ does not disclose or even acknowledge a criminal investigation unless and until it brings criminal charges.

The U.S. Securities and Exchange Commission (SEC) follows a similar practice. The SEC’s Enforcement Manual mandates confidentiality during the investigation process: “All information obtained or generated by SEC staff during investigations or examinations should be presumed confidential and nonpublic unless disclosure has been specifically authorized.”⁸ The SEC’s Division of Enforcement undertakes hundreds of investigations each year, many of which are closed without any finding of wrongdoing. In recognition of this fact,“[i]t is the general policy of the SEC to conduct its investigations on a confidential basis to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the SEC determines that enforcement action is not necessary or appropriate.”⁹ As with the DOJ, the SEC publicly announces an investigation only after it has filed charges in a court or in an administrative tribunal.

Discussion

The FCA’s Consultation Paper raises serious concerns and threatens grave unfairness to firms that find themselves under investigation. Furthermore, given the prevalence of cross-border investigations in today’s global financial markets, the consequences of the FCA’s proposed new rule would reverberate in the U.S., Europe and elsewhere in the world. Issues with the FCA’s proposal include:

• The severe risk of premature and unfair prejudice—including negative publicity, reputational harm and follow-on private litigation—for firms as to which no charges are ever brought. As recently cited by the FCA’s Joint Executive Director of Enforcement, around two-thirds of investigations opened by the FCA lead to no further regulatory action being taken.¹⁰ This scenario calls to mind former U.S. Secretary of Labor Raymond Donovan, who famously asked after being exonerated: “Which office do I go to to get my reputation back?”
• Potentially unintended consequences to market stability as a result of asset price movements. For example, asset management firms may receive significant redemption requests from investors and be required to divest assets to meet the redemptions; or issuers of listed securities that presently do not publicize investigations at an early stage may experience price fluctuation as the market reacts to news of a regulatory investigation.
• The lack of any practical means for a firm to fairly respond to a disclosure by the FCA, such as rebutting the investigation or putting it into context. An announcement that the FCA has opened an investigation would, in many cases, open the floodgates to questions from investors, business counterparties and the press, yet a firm under investigation would face significant constraints in offering any substantive response. These pressures would be exacerbated by the very short response period of only one business day, combined with the lack of any clear process or practical means for a firm to challenge an intended disclosure by the FCA. 
• Potential conflict with the confidentiality requirements applicable to the FCA under the Financial Services and Markets Act 2000 (FSMA), which requires the FCA to treat as confidential information it receives from firms.
• Although the FCA proposal excludes naming individuals under investigation, there may be situations where individuals are identifiable based on the description of the investigation. FSMA grants individuals “third party rights” under section 393 by the time a Warning Notice is issued, but the FCA does not address these rights in its Consultation Paper.
• The tension between the FCA’s Principle 11—which requires firms to self-report to the FCA “anything relating to the firm of which that regulator would reasonably expect notice”—with the FCA’s new publication policy. Principle 11 is aimed at requiring firms to deal with their regulator in an “open and cooperative way,” but public disclosure of investigations would place strains on that very same relationship.

In the Consultation Paper, the FCA took the affirmative position that it will not consider the detrimental effects publication may have on the firm.¹¹ It is not clear how this position aligns with investigation subjects’ reasonable expectations of privacy (especially in criminal cases brought by the FCA) or with rights protected by the Human Rights Act 1998, and may be subject to legal challenge.

More fundamentally, it is unclear why the FCA considers that it needs to name firms under investigation in order to achieve its stated aims. The regulator could pursue alternatives such as more timely and detailed reporting of the pace and efficiency of investigations as well as subject matters under investigation, “hot topics,” enforcement trends (similar to its Market Watch publication) and—of course—detailed publication of the alleged underlying facts and circumstances whenever a breach of rules or regulations is found to have occurred. Leaders of the SEC and DOJ regularly issue reports and make speeches on these topics, and both agencies issue detailed and comprehensive press releases once they have determined to file charges.¹² As a result of these practices, both agencies generally have been able to strike an appropriate balance between fairness and transparency in their public communications about investigations. While the Consultation Paper refers to the Monetary Authority of Singapore as an example of a regulator that has adopted a similar disclosure policy, a better benchmark would be the U.S., given the size and significance of the U.K. as a financial center. The experience in the U.S. suggests that the FCA can achieve its goals of increased public awareness and transparency without compromising the fundamental values of fairness and due process that underlie the practice of investigative confidentiality.

^{1 FCA Consultation Paper, available at https://www.fca.org.uk/publication/consultation/cp24-2.pdf.}

^{2 https://www.fca.org.uk/news/statements/fca-statement-regarding-potential-enforcement-action-against-link-fund-solutions-ltd.}

^{3 Consultation Paper at 2.}

^{4 Id. at 13-14.}

^{5 Id. at 2.}

^{6 See DOJ, Justice Manual, §§ 1-7.100-7.400, available at https://www.justice.gov/jm/jm-title-1-organization-and-functions (“DOJ, Justice Manual”).}

^{7 See DOJ, Justice Manual, § 1-7.100.}

^{8 See SEC Enforcement Manual, §5.1, available at http://www.sec.gov/divisions/enforce/enforcementmanual.pdf}

^{9 https://www.sec.gov/complaint/info; see also SEC Enforcement Manual, §5.1.}

^{10 https://www.reuters.com/world/uk/uks-fca-plans-lift-veil-investigations-early-discourage-misconduct-2024-02-27/}

^{11 Consultation Paper at 14.}

^{12 See, e.g., Department of Justice Fraud Section’s 2023 Year In Review, available at https://www.justice.gov/criminal/media/1339231/dl; Gurbir S. Grewal, Dir., Div. of Enforcement, U.S. Sec. & Exch. Comm'n, Remarks at Ohio State Law Journal Symposium 2024 (Feb. 23, 2024), available at https://www.sec.gov/news/speech/grewal-ohs-022324?utm_medium=email&utm_source=govdelivery; Deputy Attorney General Lisa Monaco Delivers Keynote Remarks at the American Bar Association’s 39th National Institute on White Collar Crime (Mar. 7, 2024), available at https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-keynote-remarks-american-bar-associations; United States Attorney Announces Charges Against FTX Founder Samuel Bankman-Fried (Dec. 13, 2022), available at https://www.justice.gov/usao-sdny/pr/united-states-attorney-announces-charges-against-ftx-founder-samuel-bankman-fried.}