The reforms are of importance to firms and individuals subject to investigation and enforcement by the Financial Conduct Authority, as they have significantly changed the basis on which determinations are arrived at for certain classes of conduct.
Financial Conduct Authority (FCA) reforms on regulatory enforcement decision-making
On 26 November 2021, the FCA published Policy Statement 21/16 “Issuing statutory notices — a new approach to decision-makers” (“PS21/16“) (see here). In PS21/16, the FCA sets out the final changes to the Decisions Procedure and Penalties Manual (DEPP) and the Enforcement Guide as proposed in the Consultation Paper (CP21/25) published in July 2021. This transfers decision-making from the Regulatory Decisions Committee (RDC) to executive procedures (FCA staff will make the decisions) in certain authorisation, intervention and straightforward cancellation cases and in respect of decisions on whether to commence civil and criminal proceedings from 26 November 2021.
Specifically, the following categories of regulatory enforcement decisions have been moved from the RDC to executive procedures:
- Decisions relating to a firm’s authorisation or an individual’s approval
- Decisions to use the FCA’s own-initiative intervention powers to impose a fundamental variation of permission or requirement in relation to a firm (DEPP 2.5.8G defines fundamental variation or requirement)
- Decisions to take action in straightforward cancellation cases because a firm does not meet the FCA’s regulatory requirements, and if that action is contested
- Decisions to commence civil proceedings, such as seeking an injunction
- Decisions to commence criminal proceedings, such as a prosecution for insider dealing
FCA staff will consult FCA lawyers before making such decisions. Subjects of any proposed decision will be informed of the nature of the proposed decision; the reasons for coming to the decision; and the supporting materials relied on. The subject will then have an opportunity to make representations before a final decision is made.
Public law principles
As an independent public body, the FCA is bound by general principles of public/administrative law. Therefore, apart from the statutory appeal procedure in place before the RDC, there will be limited occasions when judicial review could be the appropriate remedy for challenging a decision made by the FCA.
Some public law principles that regulate decision-making by the FCA are as follows:
- The duty to give proper or adequate reasons for the decisions it makes
- Parties should have the opportunity to be heard before decisions are made
- The duty to make decisions dispassionately according to the law and the materials before it
- The duty to follow a set procedure for making its decisions
The RDC must follow these public law principles in its decision-making. While any decision of the RDC can be appealed to the upper tribunal, the courts have also determined that judicial review proceedings of decisions of the RDC (based on public law principles) can be brought where the alternative remedy, i.e., proceedings via an appeal to the upper tribunal, “is nowhere near so convenient, beneficial and convenient” (per Lord Denning in R v. Paddington Valuation Officer, ex parte Peachey Property Corp Ltd  1 QB 380). Appeals to the RDC and/or upper tribunal will be the usual route; however, in some circumstances, a decision to pursue judicial review proceedings might be a better option. What is important is that the same public law principles will apply to decisions of the “new” FCA executive decisions, and judicial review will be an alternative remedy.
The FCA will carry out a six-month post-implementation review to assess the effectiveness of the changes, and it will include in its annual report similar data on executive decisions and outcomes that it currently provides for the RDC once such data is available.
Research conducted by Ariel Leung, trainee solicitor.