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Financial Conduct Authority (FCA) Enforcement Investigations

The Financial Conduct Authority (FCA) is the primary regulator for the conduct of individuals and companies who operate in the Financial Services sector.  That sector is now enormous. It encompasses the provisions of ‘vanilla’ financial services to the consumer (traditional high street banking – accounts, mortgages), to share trading by individuals and investment banks (buying and selling of shares/options/futures on FTSE100 and AIM and any other regulated market), to loans under the Consumer Credit Act (car financing loans) and the murky world of binary options.

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Financial Conduct Authority (FCA) Enforcement Investigations

In accordance with the breadth of the sector, the FCA’s enforcement activity now ranges from investigating criminal conduct:

  • insider dealing (buying and/or selling shares based on non-public information)
  • misleading statements to individuals and markets (dishonest statements to induce other parties to act in a certain way)
  • breaches of the general prohibition (undertaking the provision of financial services activity without FCA permission to do so) and
  • breaches of the money laundering regulations (insufficient due diligence)

and regulatory breaches of:

  • the Senior Managers and
    Certification Regime (SMCR) (conduct that is not ‘fit and proper’); and
  • the
    Principles for Businesses (PRIN) (demonstrating a lack of integrity; failing to
    conduct business with due skill care and diligence; failing to treat customers
    fairly; providing unsuitable advice).

Financial Services & Markets Act 2000

The FCA derives its power to regulate from the Financial Services & Markets Act 2000 (‘FSMA’). FSMA gives significant powers to the FCA’s Enforcement & Market Oversight Division (‘EMO’) to open enforcement investigations.  FSMA provides the FCA with a considerable suite of information gathering powers such as the power to compel information and also seize it.

The FCA is also unusual in that although it is a UK government agency it is also a limited company and funded through subscription by the financial services industry.

The combination of a power to compel and a proper budget for enforcement investigations make EMO a formidable force: it is methodical, thorough and certainly not speedy.

What is a dual-track investigation

All EMO enforcement investigations are now opened on a ‘dual-track’ basis. A dual track investigation is one where the conduct is viewed in the context of a potential regulatory breach and suspected commission of a criminal offence.

What is the power to compel (s171-175)?

When FCA enforcement investigators are appointed to look at an individual or company’s conduct they do so with the ability to use all the powers available in FSMA (s167 -168). Those powers included the power to compel information (s171-175) and apply for criminal search warrants (s176).

The power to compel information (s171-175) in the form of answers to questions but also in the supply of physical documents is not to be underestimated. The power can be exercised not only in relation to the subject of the investigation but also any other party who may hold information that is relevant.  Only the Serious Fraud Office has a similar power (s2 Criminal Justice Act 1987).

Non-compliance with a compelled request can result in prosecution (s177) and the FCA has shown a willingness to pursue such action: Konstantin Vishnyak was under investigation by the FCA for suspected insider dealing offences and the FCA allege that he deleted a WhatsApp application on his mobile phone after he was required to provide it as part of the investigation.

Richardson Lissack’s approach to FCA enforcement investigations

Richardson Lissack’s approach to FCA enforcement investigations is holistic. It will often be unclear whether EMO will pursue a criminal or civil sanction and as outlined above such a decision can be deferred for a considerable period.

Individuals and companies need to be prepared equally for argument in the criminal courts and in front of the Regulatory Decisions Committee (the FCA’s own internal committee that is the arbiter of whether a civil financial penalty requested by EMO is fair).

Richardson Lissack has substantial experience of successfully guiding subjects of FCA enforcement investigations through what is a long and stressful process.  That ability to achieve a successful outcome for clients is enhanced by the experience of the head of the firm’s Financial Services regulatory team as a former FCA enforcement lawyer.

Prevention is better than a cure

How Richardson Lissack can help

Our lawyers are available to assist you and provide legal advice.

Contact London 020 3753 5352 or Manchester 0161 834 7284. Alternatively you can email info@richardsonlissack.co.uk

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