FCA rethinks ‘name and shame’ policy amid backlash

The FCA initially proposed the idea in February, suggesting that public disclosure would better align it with other UK regulators

• Pramod Thomas
• 14 November, 2024

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By: Pramod Thomas

THE Financial Conduct Authority (FCA) recently announced that it is revising its controversial approach to publicly identify firms under investigation.

This change follows strong opposition from the financial industry, which argued that the policy could harm reputations without due process, reported the Times.

FCA’s chief executive Nikhil Rathi informed the House of Lords financial regulation committee that the regulator is re-evaluating its plans.

While the FCA’s original intention was to deter misconduct and encourage whistleblowing by naming companies under scrutiny, Rathi clarified that the updated strategy would be “fundamentally reshaped.”

This means the FCA will avoid an extensive disclosure approach, which was never the intent, according to Rathi.

Only a limited number of companies—two to three annually—would likely be identified, and those companies would be granted a ten-day notice period to respond before any public announcement. This notice period was extended from the one-day warning in the original proposal.

FCA chairman Ashley Alder, also present at the committee, admitted that the FCA had not communicated the plan clearly, which led to confusion and backlash. He stressed that there had been “miscommunication” about the extent of the disclosures.

While acknowledging industry concerns, Rathi promised a comprehensive update on the revised strategy soon. The final decision is expected in the first quarter of next year.

The FCA initially proposed the idea in February, suggesting that public disclosure would better align it with other UK regulators, such as the Serious Fraud Office and the Competition and Markets Authority, which typically announce their investigations.

However, critics argued that the approach could unfairly tarnish firms’ reputations, especially as many investigations conclude without punitive actions. During consultations that concluded in April, feedback from the industry highlighted the need for a balanced approach that would not unduly damage firms yet maintain transparency for the public.

In another development, the FCA also issued a warning to motor finance lenders, advising them to prepare for a surge in consumer complaints due to a recent Court of Appeal ruling. This ruling broadened the accountability of lenders, stipulating that they must fully disclose commissions to consumers.

According to the watchdog, lenders might face substantial financial provisions, as they may need to compensate consumers for past undisclosed commission payments.

Major motor finance companies, including Lloyds Banking Group and BMW’s financing division, have already set aside significant funds to address potential compensation claims, with provisions ranging in the millions.

As the FCA considers additional extensions for complaint responses, lenders are bracing for a potential financial impact on their operations and shareholder distributions, the report added.

The motor finance industry is under increased scrutiny as legal cases continue, with a final decision awaited from the Supreme Court.