As we shall see – this is not the case.
FCA investigations, whether under Section 167 (general) or 168 (particular) of the Financial Services and Markets Act 2000, can and do become public knowledge. They often inflict incalculable and considerable reputation cost. The key to minimising the cost of damage to reputation is preparing and deploying a coherent communications strategy that controls messaging, manages uncertainty amongst stakeholders and protects the brand.
The FCA will usually argue that a firm under investigation must not announce even the fact of the investigation. To do so would prejudice the investigation and therefore risk a breach of Principle 11, a high-level but powerful requirement of firms to deal with the regulator in an open and co-operative way. Failure to comply with Principle 11 can result in robust and costly enforcement action by the regulator.
However, this is at odds with various market obligations. Publicly listed firms have continuing obligations to notify the market of any fact that might impact upon their share-price, including regulatory intervention and investigations. If listed on the main market or AIM, the notification has to be published on the Regulatory News Service before being announced on any other outlet. There is also an obligation to notify shareholders and investors in financial reports.
Any such notification will often lead to the fact of a regulatory investigation being reported in the media. This will in turn lead to reputation damage if not managed properly through an effective communications strategy.
The FCA’s duty of confidentiality
Similarly, the FCA and appointed investigators have potentially conflicting obligations under Section 348 of the Financial Service and Markets Act 2000 and the regulator’s internal guidance on conducting investigations, the FCA Enforcement Guide. Section 348 creates an obligation on the regulator not to disclose confidential information relating to a party under investigation without consent from that party.
However, the FCA Enforcement guide states that the FCA will not normally announce the fact that it is or is not investigating a particular matter unless in exceptional circumstances (emphasis added). These circumstances may include whether the matter under investigation has become the subject of public concern, speculation or rumour.
When assessing exceptional circumstances, the FCA may consider the potential damage to reputation. Defining exceptional circumstances can of course be a subjective exercise, but the FCA is much more concerned with consumers and protecting the market than damage to the reputation of the firm under investigation.
Even if there is no agreed announcement by the party or the regulator, there may still be internal or external leaks to the media by persons unknown. After all, there is no bar on the press publishing the fact of an investigation if they were to learn of it by other means.
Concurrent investigations in other jurisdictions where the facts are widely reported are also likely to be picked up by the UK press.
So, there is no absolute obligation on a party under investigation or the FCA to keep the fact of the investigation secret and there are other ways by which it may be made public. Therefore, the risk of reputation damage from FCA investigations becoming public knowledge must not be ignored by regulated firms.
The cost of reputation damage may be the single greatest cost to a business under investigation by the FCA; it may exceed any fine subsequently imposed by the FCA many times over. This cost often bites even if no wrongdoing is found by the regulator and no action is ultimately taken at the end of an investigation.
Reputation damage is caused by uncertainty amongst stakeholders and in the market. Planning and executing a successful communications strategy during an FCA investigation is therefore, along with the legal and commercial strategy, an essential part of protecting the firm and the brand at a time of high reputation risk.
Communications is much more than a carefully timed press-release drafted by ill-informed advisers. It requires careful strategic thought and content development, an understanding of the regulatory process as well as the commercial sensitivities of the party under investigation.
The key to any communications campaign is to prepare for the proverbial ‘knock on the door’ from the FCA before it occurs. Advance identification of reputation risk areas, stakeholder mapping and spokesperson training is essential. Identifying roles, responsibilities and the proper escalation process for a communications response is just as important as the legal response to the regulator.
The second is to deploy a communications campaign that is completely consistent with, and supportive of, the legal and commercial strategy. It is time for legal teams, communications advisors and management to sit around the table together and work to a common purpose.
By Antony Dunkels at Bell Pottinger and Richard Burger at partner with city law firm RPC. Both were previously enforcement lawyers with the regulator.