On 15 October 2013, the FCA published its Policy Statement (PS13/9) on the publication of information about warning notices under its new powers (see section 391(1)(c) FSMA). The FCA’s new approach will apply in respect of warning notices issued on or after the date of the Policy Statement.

Before these powers came into force in April 2013, the regulator had only been able to publish information about decision or final notices. There had been considerable opposition to the introduction of these powers, on the basis that such publication could inflict irreparable reputational damage, even though a warning notice is little more than an indication of what the regulator is minded to do before considering full written and oral representations from the person concerned. The government nonetheless chose to give the regulators these powers, and the FCA had initially consulted on their proposed use in March.

Firms and individuals will welcome the fact that the FCA has made a number of changes to its proposed approach. In particular, whilst “it will normally be appropriate to publish details of a warning notice” the FCA has stated that it will normally not be appropriate to identify an individual who is subject to a warning notice. This is in recognition of the fact that the potential harm caused to an individual from publication will normally exceed the benefits of early transparency, a key objective of the FCA’s new powers. Director of Enforcement, Tracey McDermott, said: “We listened carefully to views from inside and outside the industry. I believe we have got the balance right so we now have in place a regime that enables us to provide information to consumers, investors and firms earlier about the action we are taking to tackle misconduct to ensure markets work well and consumers get a fair deal“.

The FCA has also responded to feedback by lowering the threshold for demonstrating unfairness. Once a firm or individual receives a notification of intention to publish, they will have 14 days to make representations to show that publication could cause a disproportionate level of damage (this relatively short timeframe is no doubt driven by the FCA’s desire to publish a warning notice early on in the RDC proceedings). Examples of disproportionate damage include where publication could:

  • Materially affect the person’s health;
  • Result in bankruptcy or insolvency;
  • Result in a loss of livelihood or a significant (as opposed to disproportionate) loss of income; or
  • Prejudice criminal proceedings to which they are a party.

The FCA will not hear arguments about the merits of the warning notice itself – these will be heard as part of the RDC’s normal decision-making process. This means that the assessment of potential unfairness which may be caused by publication takes no account of the strength of the available evidence.

If, having begun disciplinary action and published a warning notice, the FCA decides to drop the case, the FCA proposes to publish a notice of discontinuance in the same way as the warning notice was published i.e. with a press release. The warning notice will be amended to include a prominent message that a notice of discontinuance has been given, together with a link to that notice. The FCA will not include reasons for discontinuance in the relevant publication.

The FCA says in its Policy Statement that from 1 April 2010 to 31 March 2013 only 3 out of 87 warning notices were followed by a notice of discontinuance rather than a decision notice. In the other 84 cases, it is not clear whether the FSA’s description of the facts, its proposed action, or the reasons for taking such action, changed materially between the warning and decision notice stages. Despite some genuine attempts by the FCA to address concerns about unfairness in the publication regime, in cases where the RDC issues a decision notice which in fact finds that a firm’s/individual’s misconduct is not as serious or as widespread as that alleged in the warning notice (having had the benefit of oral/written representations), it remains a risk that some readers will not realise this and/or that the perception created by the original warning notice statement may be difficult to shift.

It is also possible that the early publication of information about a case will have unintended consequences on a firm’s/individual’s appetite to settle. Some may feel additional pressure to settle quickly before the warning notice but, once details of the alleged mis-conduct is out in the open, those affected may be more inclined to fight their case in front of the RDC and potentially all the way to the Upper Tribunal.

Finally, we will have to wait and see whether the PRA, which in April published its Policy Statement on its decision-making policy and procedure, will take a consistent approach with the FCA’s published approach.