FCA investigations

Lawyers for a Financial Conduct Authority Investigation

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.  An FCA regulatory investigation process is one of the most stressful experiences you will have to go through because an adverse conduct finding could be the end of your career. You may also face financial ruin on top of a jail sentence.

It is possible for the FCA investigation to go no further than the initial scoping discussion. If you are well advised and prepared in advance of the scoping discussions, you stand a stronger chance of halting the investigation.

Breach of the FCA regulations

Conduct that may amount to a breach of the regulations 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.

FCA powers

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
• censuring.

You may believe that you have a defence because someone more senior made you ‘do it’. It is also often argued that non-compliant behaviour is rife within an organisation. These will not avoid enforcement and sanctions can be directed at you as well as at your employer.

FCA investigation process

The FCA has its own procedure when conducting investigations. The procedure is lengthy and complex. The key stages of the procedure are:

• Scoping discussions - 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.
• Investigation - this 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.
• Decisions Committee - If the FCA believe that action against you is justified, they will submit the case to the Regulatory Decisions Committee (RDC).
• Warning Notice - 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.
• Decision Time - 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.

How to defend 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;
• Preparing mitigation;
• Having a negotiating position ready and considering trade offs; and
• Preparing and attending Tribunal hearings.

Settlement of a Financial Conduct Authority 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.

Employment law implications

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.

How we can help

Alex Kleanthous is a partner in our employment law team working with employees facing an FCA investigation. If you need help, please call on  020 7438 1060.