SBAI Response to FCA CP 24-2 Enforcement Guide and Publicising Enforcement Investigations

In our response to this Consultation, we outline our thoughts on how existing industry practices could be improved to achieve the desired outcomes, while highlighting our concerns in relation to the publication of early details related to ongoing enforcement cases.

While the FCA’s proposals to enhance transparency and expedite enforcement actions are aimed at improving the effectiveness of market oversight and improving industry conduct, there are potential unintended consequences of the proposals in relation to alternative investment fund managers and the broader financial industry which warrant careful consideration.

Publicly announcing investigations before their conclusion could lead to significant reputational harm for entities involved, regardless of whether any announcement caveats that they do not imply a conclusion has been reached. For investment managers, even a hint of regulatory scrutiny can cause a swift negative reaction from the market which can affect investor confidence and business relationships irreversibly.

There is a genuine concern that public announcements of regulatory investigations could trigger increased redemption activity which could adversely impact the financial viability of investment managers and result in material financial losses for their clients/investors. It is difficult to justify inflicting this economic harm on parties who have not yet been shown to have engaged in misconduct (let alone on their clients).

While the FCA’s ambition of improved transparency and faster enforcement aligns with the goal of improving market integrity, it is vital to balance these ambitions against the potential for significant adverse effects to market participants and end investors/consumers. By strengthening existing whistleblowing mechanisms and adopting a more measured approach to public disclosures, the FCA can better support the stability and competitiveness of the UK financial market while maintaining rigorous standards of conduct and compliance.