It has been argued that firms and individuals investigated by the Financial Conduct Authority (FCA) have been under too much pressure to admit wrongdoing early in order to receive a 30% discount on the fine imposed. Critics said that this often came at the expense of a fair outcome.
But changes to the FCA’s enforcement process may boost the chances of firms and individuals being able to enter into negotiations with the FCA to secure the most favourable possible result.
Instead of having to admit wrongdoing to receive the 30% discount on the settlement fine, firms and individuals will now be able to obtain it while still contesting parts of the case. This can now involve making representations to the Regulatory Decisions Committee (RDC), an independent panel within the FCA.
Until now, anyone subject to FCA enforcement actions could only obtain the 30% settlement discount if they settled their case within Stage 1 - a 28-day period that starts when they receive a draft Warning Notice from the FCA.
If no settlement was reached during Stage 1, a 20% discount could be obtained by settling on or before the last day for making written representations to the FCA in response to the Warning Notice. There was a last chance to obtain a 10% fine discount if a settlement was reached by the date that the Decision Notice was published.
The new process keeps the Stage 1 settlement period. But it now allows anyone being investigated and the FCA to agree on some aspects of the case and disagree on others while retaining some of settlement discount.
The discount will be:
* 30% if the facts and breach are agreed on and only the penalty is disputed.
* Between 15% and 30% if the subject disputes that there was wrongdoing and the size of the penalty - this will depend on how much agreement there is between the FCA and who is being investigated.
The change is beneficial because it:
* Gives greater scope to companies and individuals who believe they can gain from negotiations with the FCA. Previously, they may have abandoned negotiations to gain a quick settlement and discounted fine.
* Offers the chance to negotiate without any fear of it costing them a reduced penalty.
* May encourage FCA enforcement investigators to be more open minded in negotiations about what, if any, wrongdoing occurred.
But anyone wanting to negotiate must appoint the right defence team.
This means a team capable of:
* Examining and analysing everything that the FCA proposes to use as evidence.
* Finding ways to question and challenge the FCA’s assumptions.
* Making informed, persuasive representations.
* Producing evidence that counters FCA claims.
* Dissecting the FCA’s evidence and arguments to persuade it that it would may be in its interest to agree a settlement that is more lenient than it had anticipated.
The new process offers potential to challenge assumptions made by FCA investigators. But such a challenge must be placed in the hands of those with the relevant expertise.
There is no doubt that the FCA seemed to have it all its own way until now. Many people in the past may have been cowed by the fear that they would miss out on the best deal possible.
In some cases, this must surely have led to them accepting that they had done wrong simply in order to make the problem “go away’’ with the minimum punishment that was on offer.
Now, anyone under investigation has a real chance to counter the FCA allegations. With the right legal representation, there is now much greater scope to mount a full and robust defence to the FCA’s claims and establish the true situation. This, arguably, will also benefit the FCA if it is concerned with justice rather than simply case closing.