We have commented over a period of time on the progress of the controversial proposals for publishing details of Warning Notices. The power is now in force, and the issue is now how it will be used. This comment piece relates to the March 2013 consultation on the approach that the FCA proposes to take to publication3.

The consultation paper was published by the FSA in March 2013. It sets out proposed changes to section 6 of the Enforcement Guide which deals with the matter. The consultation closes on 18 June 2013.

Under s.391(1ZB) FSMA, the FCA has power to publish details of Warning Notices in relation to certain types of proceedings. However, it is not permitted to do so where publication would be unfair to a subject, would prejudice the interests of consumers or would be detrimental to the stability of the UK financial system.

The FCA's default position is unsurprisingly that it will publish details of a Warning Notice. Interesting aspects of the proposals for exercise of the power are:

on unfairness:

  • the suggestion is that
    • a negative impact on reputation will not be sufficient to meet the criterion of unfairness as this is an inevitable consequence of publication.
    • subjects will instead need to provide "clear and convincing" evidence of how the unfairness will arise and how they could suffer a "disproportionate level of damage."
  • Examples of such evidence are given, such as
    • that publication would result in deterioration of a serious illness or the health of a direct family member would be affected.
    • Evidence of loss leading to bankruptcy, insolvency or staff redundancies may also be sufficient to show unfairness but this is likely only to be relevant to smaller firms.
  • We have on many occasions set out our thoughts on publication relating to Warning Notices. Whilst Parliament did not adopt all that the FSA had lobbied for on the topic (see Enforcement Watch 6 "FSA makes its views known on early publication of Warning Notices"), the publication of details is still potentially hazardous. A restrictive approach to unfairness such as the FCA looks to want to adopt, may cause real issues to the targets of FCA action.

on removal from the FCA website:

  • where the Warning Notice does not result in a Decision Notice or a Final Notice, the proposal is not that the Warning Notice statement is removed (at least not within six years), but rather that, with consent, a discontinuation notice is published.
  • It is difficult to see the justification for this approach. If the FCA took action that was then discontinued, a respondent would feel rightly aggrieved that the detils of the initial allegations remained on show.

on sanction:

  • the power to publish does not apply to proposals to prohibit
  • the FCA says it does not propose to publish details of proposed sanctions eg level of fine
  • given that any prohibition proposal we have ever seen has always carried with it also a proposed fine, the net result is that details will be published of conduct where a prohibition is sought. Unless the FCA publishes at the highest level of generality (and even possibly also then), it will likely be very easy for readers to work out who the FCA is proposing to prohibit.

Please click for the Consultation Paper