Timid FCA has retreated too far on its ‘name and shame’ proposals

Lobbying victories for the City do not come much more comprehensive. Last year, the Financial Conduct Authority, the industry regulator, put forward a proposal that it should be able to name firms under investigation more frequently.

Greater openness at an earlier stage, argued the FCA, could deter bad behaviour and protect consumers. A “public interest” test on disclosure would be better than the existing “exceptional circumstances” rule that was so stifling that the FCA was silent even as British Steel pensioners, in a well-publicised scandal in 2017, were fleeced by unscrupulous financial advisers who gave them terrible advice.

But the uproar from City firms and lawyers over the FCA’s proposals was loud and persistent. They painted the plans as an offence against natural justice. Mere disclosure of an investigation could harm a company’s reputation even if it was found eventually to be innocent – and 65% of FCA’s cases, they noted, have historically resulted in no further action. The “name and shame” shorthand for the proposals stuck. The lobbyists’ trump card was the familiar one that the FCA would damage the City’s competitiveness and UK growth. Ministers, under the last Tory government and today’s Labour one, adopted the line.

Thus the outcome on Tuesday of the FCA’s review of “transparency around enforcement investigations” was expected: reform is scrapped. The only surviving elements are ones nobody could possibly have regarded as objectionable, such as ending the absurdity whereby the FCA could not confirm the fact of an investigation even when the corporate subject of the inquiry had itself revealed the news in a public filing to an overseas regulator. Otherwise, it’s a full retreat by the FCA. “Given the lack of consensus,” said its chief executive, Nikhil Rathi, the regulator will stick to its old “exceptional circumstances” test.

Some of the City’s criticisms were reasonable, it should be said. The FCA’s initial proposals were vague on how the “public interest” bar would be applied. While the regulator obviously wasn’t going to risk a run on a bank, there wasn’t much else to go on. And it was true that few other jurisdictions had attempted anything similar, which left the door open to the grumble about London imposing anti-competitive rules on itself.

Yet one still comes back to cases such as the British Steel pension scheme. Even City opponents of the FCA’s proposal tended to concede it was a nonsense that the regulator felt it couldn’t intervene to prevent a small scandal becoming a big one. Is the FCA seriously saying it would have to do the same again in a similar case? It seems it is. Rathi confirmed that “our current interpretation” is that a British Steel-like example still wouldn’t qualify under the “exceptional circumstance” bar. The reason is that poor financial advice doesn’t count as “exceptional”.

That is a depressing outcome to this consultation. Even an uncontentious, minor consumer-friendly improvement has been lost for the sake of protecting City competitiveness. No wonder consumer and whistleblowing groups are dismayed. The only token tilt in their direction is the FCA’s idea of publishing occasional thoughts on “issues” under investigation without naming names. But that reads as a formula for talking in code. It is all a very long way from the original intention to use greater transparency to “support public confidence” and “reassure consumers”.

The FCA’s hand, one can agree, was forced if the government of the day is opposed. And, yes, growth obviously matters: in another corner of its patch, the FCA’s reforms to listing rules for public companies have generally been pragmatic. But consumer protections are also important. A watered-down compromise version of the transparency proposals should have been possible. Instead, there’s nothing left.