In February 2024, the Financial Conduct Authority (FCA) initiated a pivotal consultation titled ‘CP24/2: Our Enforcement Guide and publicising enforcement investigations – a new approach’. This move seeks to transform the transparency of the FCA’s enforcement activities, specifically targeting how it announces actions against non-compliant financial institutions. Under the proposed guidelines, the FCA would publicly disclose the commencement of new investigations, even if the investigated parties are ultimately not penalized.
Napier AI, a next generation compliance platform, recently commented on what the FCA CP24/2 consultation means for financial institutions.
The proposed changes under CP24/2 are significant, it said. They include potentially identifying the institutions under scrutiny along with a brief on the alleged misconduct. However, the FCA plans to handle cases involving individuals with greater discretion due to data privacy concerns, limiting disclosures to exceptional circumstances. Updates on ongoing investigations will be decided on a case-by-case basis, ensuring a balance between transparency and the need for confidentiality.
The rationale behind the FCA’s shift towards greater transparency is multifaceted. Enforcement actions are not solely punitive; they serve as a deterrent and educate the market on regulatory expectations and lapses in compliance by others. By being more open about ongoing investigations, the FCA aims to enhance market accountability, provide clarity on the behaviours that may trigger investigations, and foster an informed compliance environment.
However, the consultation has sparked debate. In April 2024, the House of Lords Financial Services Regulation Committee expressed concerns through a letter to Nikhil Rathi, Chief Executive of the FCA on April 22, warning that prematurely publicizing investigations could negatively impact firms, especially those eventually found not at fault.
The CP24/2 consultation presents a dual-edged sword for UK financial institutions. On one hand, it promises to enhance the identification and prioritization of suspicious activities by incorporating regulatory insights into advanced AI detection models. On the other, it raises concerns about the potential economic impact and the integrity of the market. Nevertheless, this initiative could significantly improve the effectiveness of financial crime compliance strategies by fostering a more dynamic feedback loop between law enforcement and financial institutions.
This feedback mechanism is crucial in refining the detection and reporting of financial crimes. By integrating insights from enforcement actions into a structured database accessible to FIs, the FCA aims to strengthen preventative measures before issues escalate to legal enforcement stages. Collaborative efforts, such as the Synthetic Data Expert Group under the FCA’s Innovation Advisory Group, further demonstrate the agency’s commitment to merging regulatory enforcement with technological innovation in the fight against financial crime.
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