- Alex Kleanthous
- Updated: Wed, 5th Apr 2017
FCA investigations are increasingly aggressive. Failing to follow the rules can result in severe consequences.
We work with many high level individuals who are facing FCA investigations. Our aim is to deal with the regulator in a way that keeps you in the market. The FCA investigation process is one of the most stressful experiences you will have to go through because an adverse finding could be the end of your career. You may also face financial ruin on top of a jail sentences.
It is possible for the FCA investigation to go no further than the initial scoping discussion. We find that if you are well advised and prepared in advance of the scoping discussions, you stand a stronger chance of halting the investigation.
To help you, we have set out below:
An FCA investigation has to be taken seriously. The FCA’s powers are immense. They include:
- prohibiting you from operating in financial services;
- preventing you from undertaking specific regulated activities;
- suspensions for up to two years from undertaking specific controlled functions;
- imposing financial penalties;
- seeking injunctions;
- applying to court to freeze assets;
- seeking restitution orders;
- prosecutions; and
You may believe that you have a defence because someone more senior made you ‘do it’. It is also often argued that the non-compliant behaviour is rife within the organisation. These will not avoid enforcement although sanctions can be directed at you as well as at your employer.
Re-assessment of FCA status
Employer’s have an obligation to ensure that their staff performing regulated activities or controlled functions continue to be fit and proper. This includes a requirement to investigate internally. Where the FCA has cause to re-assess an existing FCA approval, the fit and proper test will also apply. Enforcement action may be taken by the FCA against you where evidence of non-compliance is found.
The employer and you are both under an obligation to inform the FCA if there is a change in circumstances which might affect approved status. Commencement of disciplinary proceedings for conduct which brings into question your fit and proper status would be one such instance.
FCA investigations: conduct that might breach the FCA regulations
Conduct that may amount to a breach of the principles includes:
- Deliberately or inadvertently misleading the firm or clients;
- Carrying on activities outside of the approved person’s skill base and experience;
- Failing to report potential and actual breaches to the compliance department, controllers and managers of the Firm;
- Failing to understand the risks of the business or the risks of products sold to clients;
- Misusing private client information;
- Misleading clients regarding risks, charges, penalties, payments, valuations, payment timings; and
- Acting in a way that amounts to serious or gross misconduct.
Consequences of a breach of the FCA regulations
Breaching the FCA regulations is likely to lead to an FCA investigation. This would be in addition to an internal disciplinary procedure.
Preparation for an FCA investigation
You need to be prepared for a rigorous process. In our experience it includes some or all of the following:
- Responding to enquiries from the FCA into suspected breaches of the FCA rules;
- Interviews and written submissions;
- Critically examining the strength of mitigating circumstances;
- Negotiations and trade offs; and
- Preparing and attending Tribunal hearings.
FCA investigation procedure
The FCA has its own procedure when conducting investigations. The procedure is lengthy and complex. The key stages of the procedure are:
FCA investigators are appointed to conduct the investigation. Initial discussions with you and the employer are intended to provide the FCA investigators with an indication of the scope of the investigation. If at the scoping meeting you can convince the FCA investigators that there is unlikely to be a case to answer you may stop the proceedings against you. Some of our most successful outcomes arise because in the background we provided guidance right from the start.
The investigation can be wide. For example, requests for documents or information and interviews with witnesses and other employees. Following the investigation there will be an FCA internal legal review of the findings.
Preliminary Investigation Report (PIR)
Where the FCA consider that there is a case, the preliminary investigation report will be sent to you. There are strict time limits for response. The response is an important stage as it is your opportunity to try and clear yourself. We work with you to assess evidence and frame it around the FCA regulations to show you in the best light.
FCA Regulatory Decisions Committee
If the FCA believe that action against you is justified, they will submit the case to the Regulatory Decisions Committee (RDC).
If the results of the preliminary investigation report suggest to the FCA there is a case you will receive a warning notice. You will be able to access all the material that the RDC relies on when reaching its decision.
The RDC may publish details of the Warning Notice on its website but only after consulting with you. To avoid publication you will need to show evidence that it would be unfair.
The FCA can issue a private warning to you and then close the case. For many this is a good outcome. It is one of the many compromises we consider for you and plan the steps needed for the case to be closed.
Appearing before the Regulatory Decisions Committee
You do have opportunities to state your case before the RDC before their final decision. In practice new evidence appears and there may be new points to make. You will stand a better chance if you are well prepared and rehearsed.
The RDC will issue its decision. There is the opportunity to make a referral to the Upper Tribunal (Tax and Chancery Chambers). The tribunal is entirely independent of the FCA and will review the entire case anew.
The Tribunal can dismiss the case if they think the FCA are wrong.
If no referral to the Tribunal is made, the RDC will issue a Final Notice. The RDC is likely to publish its decision on the FCA website under a Final Notice.
Opportunity to reach settlement of the investigation
During the process, it may be possible to enter into settlement discussions with the FCA so as to attempt to resolve the issues. Mediation is permitted and can often be helpful during any settlement discussions. Where settlement is appropriate we will advise you to seriously consider this route. Depending on when settlement is reached there can be a reduction of up to 30% on any financial penalties that are imposed.
Employer’s internal disciplinary process
Where there is an allegation of breach of the FCA principles or rules, your employer is likely to commence disciplinary action against you. This is likely to follow your employer’s internal procedure. We are able to provide support throughout the disciplinary process and advise you on how to respond to any such allegations.
Resigning before or during a disciplinary process
If you are facing disciplinary allegations you might think that resigning before the disciplinary process is complete will avoid a finding of gross misconduct on your record. This is not the case.
Your employer cannot refuse to accept your resignation. However, if the resignation is with immediate effect you are likely to be in breach of your employment contract if you are not giving the proper period of notice.
For many employers an immediate termination is an attractive outcome. In accepting the resignation there and then, the employer avoids the hassle of completing the disciplinary procedure and does not have to pay you for your notice period.
Position may be different for FCA approved employees
However, if you are FCA approved your employer might be breaching their obligations if they fail to properly investigate allegations of misconduct against approved you. Your employer is therefore likely to refuse to accept your immediate resignation. If this is the case you will still be employed for your notice period. Your employer will be able to continue with the disciplinary process whether you chose to attend or not.
We advise you not to resign when faced with a disciplinary allegation. Such resignation may suggest guilt or impropriety. Being away from the office can also limit your access to information that could prove your innocence.
Employment related matters
A number of employment related matters can arise during an internal disciplinary process or an FCA investigation. We can advise you on matters such as the disciplinary proceedings, settlement agreements, grievances and whistleblowing.
Alex Kleanthous is a partner in our employment law team working with employees subjected to an FCA investigation.
If the FCA investigates you or your bank, you'll need expertise on employment and commercial law, plus the tactics to manage your case. Why not call or email me to arrange an informal discussion.....