Last verified on Tuesday 15th November 2016
The Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Serious Fraud Office (SFO).
The FCA and PRA were established by Financial Services Act 2012, which amended the Financial Services and Markets Act 2000 (FSMA). The SFO was established by the Criminal Justice Act 1987 (CJA).
There are a wide range of violations and legal issues that may be the subject of an investigation. In recent years, particular areas of focus have included unauthorised activity, misconduct relating to benchmarks, market abuse and insider trading. There has also been an increased focus on violations by individuals, and the FCA also has taken a significant number of enforcement actions in the consumer credit sector, which it became responsible for regulating in April 2014.
The SFO is responsible for prosecution of serious frauds including securities-related offences such as insider trading. Recently, the SFO has shown particular interest in investigating bribery and corruption allegations, as well as industry-wide issues such as benchmarks misconduct. In November 2015, the SFO announced its first ever Deferred Prosecution Agreement. This was with Standard Bank, and related to allegations of a failure to prevent bribery and corruption in Tanzania.
The FCA regulates all firms carrying out regulated financial services activities. Its strategic objective is to ensure that relevant markets function well (section 1B(2) FSMA). In addition, it has three operational objectives: (i) securing an appropriate degree of protection for consumers (the consumer protection objective) (section 1C FSMA); (ii) protecting and enhancing the integrity of the UK financial system (the integrity objective) (section 1D FSMA); and (iii) promoting effective competition in the interests of consumers in the markets for financial services (the competition objective) (section 1E FSMA).
The PRA is responsible for the prudential regulation of certain types of firms, including banks, building societies, credit unions, insurers and certain investment firms. Some firms are dual-regulated by the FCA and the PRA. The PRA’s general objective is to promote the safety and soundness of PRA-authorised persons (section 2B(2) FSMA). The PRA also has an insurance objective, to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders (section 2C(2) FSMA).
The FCA and PRA are parties to a memorandum of understanding, which sets out details of coordination of formal regulatory processes and of enforcement and legal intervention. This includes consideration of whether or not the investigation should be coordinated jointly.
In practice, a significant majority of securities investigations are conducted by the FCA’s Enforcement and Market Oversight Division and there have been a number of cases where the FCA and PRA have carried out a joint investigation.
There is also some coordination between the SFO and the FCA, and the FCA has published guidance on the investigation of cases that are of interest or concern to both the FCA and other criminal prosecutors (including the SFO) (Enforcement Guide (EG) Appendix 2). The guidance states that the SFO will normally be the appropriate prosecutor where serious or complex fraud is the predominant issue in the conduct in question.
The FCA and PRA have investigatory powers pursuant to FSMA, for example, including the ability to require production of documents and to require the provision of information including through a compelled interview and enter premises. The SFO has similar investigatory powers under the CJA and other legislation including the Proceeds of Crime Act 2002.
The FCA and PRA may bring administrative proceedings using their own decision-making processes, which can ultimately be challenged in civil proceedings in the Upper Tribunal.
The FCA can also bring civil proceedings in relation to market abuse and criminal proceedings in relation to specific offences including those relating to certain regulated activities, insider trading, terrorist financing offences, money laundering offences and offences relating to making misleading statements or misleading impressions about securities or in relation to benchmarks.
The SFO is a criminal prosecutor responsible for the prosecution of serious frauds. These may include fraud offences (for example, defendants in LIBOR criminal cases have been charged with conspiracy to defraud) and offences such as insider dealing. The SFO also has the power to enter into Deferred Prosecution Agreements to resolve criminal investigations into corporate entities.
It is unusual (but not unprecedented) for FCA and PRA investigations to be made public at the investigation stage.
The FCA’s policy is that it will not normally make public the fact that it is or is not investigating a particular matter, or any of the findings or conclusions of an investigation, other than in exceptional circumstances. The FCA’s Enforcement Guide states that it may announce an investigation if the FCA considers it is desirable in order to maintain public confidence in the financial system or the market, protect consumers or investors, prevent widespread malpractice, help its investigation, for example, by bringing forward witnesses, or maintain the smooth operation of the market (EG6.1).
The PRA has also issued a statement of policy setting out its approach to publicity of regulatory action, which states that the PRA will not normally make the fact of an investigation public, but may do so in some circumstances. These include where publicity may assist the investigation (for example, by bringing forward witnesses) or where it may deter more widespread breaches of regulatory requirements.
The SFO publishes a non-exhaustive list of its current investigations on its website. This typically identifies the company or circumstances under investigation, but does not provide detailed information about the progress of the investigation.
If, following the investigation, the FCA or PRA issue a warning notice (which is a formal notice issued during an investigation stating that the regulator intends to take action, including the reasons, and giving the subject of the investigation the opportunity to make representations), they have the power to publish the warning notice. The FCA has previously done so in a summary and through an anonymous form, known as a Warning Notice statement. The FCA’s Enforcement Guide states that it will consider whether it is appropriate to identify the recipient of the notice and that it will “normally be appropriate to identify a firm, but that it will not normally be appropriate to identify an individual” (EG6.2.6(2)).
The FCA and PRA also have the power to publish a decision notice (which is a formal notice after the subject of the investigation has been given the opportunity to make representations to the decision-making committee of the regulator, stating the action that the regulator has decided to take) that is being challenged before the Upper Tribunal, and again, the FCA has previously done so.
The SFO may announce the outcome of its investigations, which may include outcomes where no further action will be taken (as it did in its FX investigation, where it announced that it would close the investigation without taking any action).
At the FCA, cases may result in an enforcement investigation through a range of channels including a referral from supervision, self-reporting from a firm (firms have an obligation to report certain matters to the FCA and PRA), identification through other regulatory work such as thematic reviews, complaints from the public or whistleblowers or from an incident such as the collapse of a firm or press coverage.
The FCA has published Referral Criteria that set out the approach the FCA will take when determining whether to open an investigation into a particular matter, and where the FCA will use other regulatory tools instead of (or as well as) an enforcement investigation. The Referral Criteria state that the overarching question is “overall, is an enforcement investigation likely to further the FCA’s aims and statutory objectives?”.
To assess the overarching question, the Referral Criteria state that the FCA will consider the strength of the evidence and the proportionality and impact of opening an investigation, and will consider what purpose or goal would be served if the FCA were to end up taking enforcement action. The Referral Criteria also gives the following non-exhaustive list of reasons why the FCA may take enforcement action:
The SFO has also published assessment criteria that it considers when deciding which cases to pursue, which include:
At the time of writing, the PRA was consulting on the implementation of an Enforcement Referral Framework, but has yet to finalise its proposals.
The FCA and PRA may commence an investigation "if it appears to [the FCA or PRA] that there is good reason for doing so" (section 167(1) FSMA) or "if it appears to [the FCA or PRA] that there are circumstances suggesting" that certain offences may have been committed (section 168(1), (2), (4) FSMA).
The SFO may investigate "any suspected offence which appears to [the SFO] on reasonable grounds to involve serious or complex fraud" (section 1(3) CJA).
To exercise powers to enter premises, the FCA and PRA may apply to court for a warrant (section 176 FSMA). The circumstances in which a warrant may be granted include where a person on whom an information requirement has been imposed has failed (wholly or in part) to comply with it, or where there are reasonable grounds for believing that if an information requirement were to be imposed, it would not be complied with, or that the documents or information to which the information requirement relates, would be removed, tampered with or destroyed.
The SFO may also apply to court for a warrant to enter premises and take possession of documents where (i) a person has failed to comply with an obligation to produce documents, (ii) it is not practicable to serve a notice requiring production of documents or (iii) the service of such a notice might seriously prejudice the investigation (section 2(4) CJA).
There is no general requirement to proactively disclose the findings of internal reviews. However, production of documents that are not subject to legal privilege may be required under any information requirement issued by the authorities. The authorities cannot compel production of documents that are subject to legal privilege.
Authorised firms and approved persons have a general obligation to disclose to the FCA or PRA anything of which the regulator would reasonably expect notice. In addition, FCA and PRA rules require authorised firms to notify them of any significant breach of a rule or breaches of certain other regulatory requirements as soon as the firm becomes aware of the matter.
While the involvement of whistleblowers is not generally publicised by the authorities, the FCA, PRA and SFO all welcome information provided by whistleblowers and all have contact points available for whistleblowers.
Disclosure provided by whistleblowers may be "protected disclosure" such that employees have a right not to be subjected to any detriment by any act, or any deliberate failure to act, by their employer on the ground that the employee has made a protected disclosure.
A package of new whistleblowing rules and guidance, introduced by the PRA and the FCA for certain regulated firms in the financial services sector, came into full effect on 7 September 2016. The new rules encourage a culture in which individuals feel able to raise concerns and challenge poor practice and behaviour. Affected firms must establish and maintain an independent whistleblowing channel through which disclosures can be made. Whistleblowers should be entitled to make anonymous and confidential disclosures via whistleblowing channel, which must be available for use not only by workers, but by any person wishing to disclose a reportable concern.
A regulatory investigation by the FCA will typically have the following phases:
The FCA may close an investigation at any stage if it determines that there is no case to answer. Settlement discussions may also take place at any stage, and the FCA operates an early settlement discount scheme that provides discounts on financial penalties.
The PRA operates a similar enforcement process, and after its investigation work is complete, it will take the following steps:
The PRA may also close an investigation at any stage by issuing a notice of discontinuance. As with the FCA, settlement discussions may take place at any time and the PRA operates an early settlement discount scheme which provides discounts on financial penalties.
A criminal investigation, whether by the SFO or the FCA, will proceed differently. An investigation may involve requiring production of documents or interviews with either the subject of the investigation or witnesses using the SFO and FCA’s statutory powers. In most securities related cases, the matter will be tried in the Crown Court where criminal procedure requires that:
The securities and related law enforcement authorities in the UK have various bilateral and multilateral memoranda of understanding with overseas authorities to facilitate cooperation and the sharing of information. The UK is also party to a number of treaties for the provision of mutual legal assistance, which provide for cooperation between states for obtaining assistance in the investigation or prosecution of criminal offences. These include multilateral agreements such as the Convention on Mutual Assistance in Criminal Matters between the Member States of the European Union and the Commonwealth Scheme Relating to Mutual Assistance in Criminal Matters, and bilateral agreements with countries including the United States.
The FCA and PRA have an obligation to cooperate with other regulators (sections 354A, 354B FSMA), and there are formal mechanisms through which overseas authorities can seek assistance from the authorities. The FCA and PRA have the power to conduct investigations to assist overseas authorities (section 169 FSMA) including by using their general information gathering powers for the purposes of assisting overseas regulators (section 165 FSMA and EG 3.12). The FCA’s policy on how it co-operates with overseas authorities is set out in DEPP 7 and the Enforcement Guide.
The SFO may render assistance to overseas authorities pursuant to the Crime (International Cooperation) Act 2003.
The findings of other regulatory authorities or enforcement agencies are relevant factors when the PRA and FCA determine whether to take action of their own. The FCA will consider whether the other authority's action would be adequate to address the FCA's concerns, or whether it would be appropriate for the FCA to take its own action (DEPP 6.2.1(6)) and the PRA will consider whether it is appropriate for the PRA to investigate and take enforcement or other legal action in respect of the misconduct in light of any other relevant action (PRA Statement of Policy on the Imposition and Amount of Financial Penalties under the Act, 3(h)(iii)).
The SFO may consider findings of overseas authorities to assist it in its investigation. However, where an overseas agency has investigated or prosecuted a subject on criminal charges, it may prevent a prosecution by the SFO against the same subject where the charges would involve the same act.
The FCA and PRA may require production of documents and information during the course of an investigation from the subject of an investigation provided that the investigator reasonably considers the provision of information or production of the document to be relevant to the purposes of the investigation (section 171(1)-(3) FSMA).
The same requirement may be imposed on a person connected to the subject of the investigation. A person is connected in a range of circumstances including where they are or were at the relevant time a member of the same group as the subject; a controller of the subject; a partnership of which the subject is a member; an officer or manager of the subject or of a parent undertaking of the subject; an employee of the subject; or a banker, auditor, actuary or solicitor of the subject or a member of its group (sections 171(1) and 171(4) FSMA and Schedule 15, Parts I and II).
In relation to certain types of investigation, the FCA and PRA may also seek documents and information from persons who are neither the subject of the investigation nor connected to the subject. This applies where the investigation is a specific investigation under section 168(1) or (4) FSMA (which is an investigation into certain specified offences or breaches of a generally more serious nature), when the investigator may require a person who is neither the subject of the investigation nor a connected person to provide information where the investigator is satisfied that the requirement is necessary or expedient for the purposes of the investigation (section 172 FSMA). It also applies where the investigation is carried out under section 168(2) FSMA (which is an investigation into certain other specified offences or breaches including conducting certain unauthorised activities, market abuse, insider dealing and offences relating to misleading conduct), whereby the investigator may require any person to provide such information as the investigator may require for the purposes of the investigation and to provide such documents as appear to the investigator to relate to any matter relevant to the investigation (section 173 FSMA).
The SFO may require the subject of the investigation or any other person whom the SFO has reason to believe has relevant information to provide information to the SFO (section 2(2) CJA). It may also require the subject of the investigation or any other person to produce such documents as appear to the SFO to relate to any matter relevant to the investigation (section 2(3) CJA).
Yes, it should be issued as soon as practicable after the company becomes aware that an investigation may be necessary or may take place.
Documents that are subject to legal privilege may be requested, but production of such documents cannot be compelled (section 2(9) CJA and section 413 FSMA). If such materials are provided to the authority (whether by the subject of the investigation or by a third party), they may be used as part of the investigation.
It is possible to provide privileged materials on the basis of a limited waiver of privilege such that the privilege is not waived against third parties. The FCA’s Enforcement Guide states that the FCA considers that English law does permit such limited waiver and that legal privilege could still be asserted against third parties notwithstanding disclosure of a report to the FCA (EG.11.12).
The SFO has a policy for dealing with material that it requires or seizes that is potentially protected by privilege, under which it takes steps to isolate the material from its investigation team and may be reviewed by an independent lawyer for privilege. The SFO’s policy was upheld by the High Court in R (McKenzie) v Director of the Serious Fraud Office  EWHC 102 (Admin).
Confidential and commercially sensitive information cannot be withheld only because it is confidential or commercially sensitive.
However, there are restrictions on the disclosure of confidential information by the FCA and PRA, and such information cannot generally be disclosed without the consent of the person from whom the FCA or PRA obtained the information and, if different, the person to whom the information relates. For these purposes, confidential information is information that relates to the business or other affairs of any person that is received by the FCA or PRA for the purposes of, or in the discharge of, any of their function. Information is not confidential information if it is otherwise publicly available or if the information disclosed is a summary or collection of information that is framed such that it is not possible to ascertain from it any information relating to any particular person (section 348 FSMA).
There are also certain circumstances in which the FCA and PRA can disclose confidential information. These include disclosure for the purpose of enabling or assisting the authorities in discharging their function, for the purposes of criminal proceedings and investigations and disclosure in pursuance of an obligation under EC Law (FSMA 2000 Disclosure of Confidential Information Regulations 2001).
Where it brings a criminal prosecution, the SFO is obliged to disclose any prosecution material that has not previously been disclosed to the accused and that might reasonably be considered capable of undermining the case for the prosecution against the accused or of assisting the case for the accused (section 3(1) Criminal Procedure and Investigations Act 1996). While materials disclosed to the defendant are subject to confidentiality requirements, confidentiality may be lost if, for example, the materials are referred to in open court.
Generally not: where a document request is issued using the statutory powers available to the FCA, the PRA or the SFO, there is no right to refuse.
There is an exception for legally privileged documents, where production cannot be compelled (section 2(9) CJA and section 413 FSMA).
There is also a limited exception in relation to the FCA and PRA for documents that are subject to the duty of banking confidentiality (section 175(5) FSMA). It should be noted, however, that the limited exception cannot be invoked by the bank when it itself is being investigated. A similar limited protection applies in relation to the SFO but can be overridden by the SFO (section 2(10) CJA).
The Data Protection Act 1998 restricts the disclosure of personal data (data relating to living individuals who can be identified from that data), such that personal data can be disclosed only in certain circumstances including where the data subject has consented, where the disclosure is necessary to comply with a legal obligation or where it is necessary for the administration of justice. Banking confidentiality would also restrict disclosure of certain information.
In relation to authorities within the UK, disclosure of such information will be permitted if the relevant authority exercises its statutory powers to compel disclosure.
As personal data may not be transferred outside the EEA unless the third country ensures an adequate level of protection for the rights of data subjects, disclosure to authorities outside the EEA presents particular difficulties. Notably, the US has not been determined to have adequate levels of protection. One approach for provision of documents to a non-EEA authority is for the foreign authority to make its requests through the FCA, which can then exercise its statutory powers to compel production.
It should be noted that from 25 May 2018, the EU data protection framework on which the Data Protection Act 1998 is based will be replaced by the General Data Protection Regulation (GDPR), which will have direct effect in EU member states.
Personal data may not be transferred outside the EEA unless the third country ensures an adequate level of protection for the rights of data subjects. It should be noted that the US has not been determined to have adequate levels of protection. The prohibition on transfer of personal data outside the EEA is subject to exemptions in a number of circumstances (set out in Schedule IV, Data Protection Act 1998), including: (i) where the data subject has consented, (ii) the transfer is necessary for reasons of substantial public interest or (iii) the disclosure is necessary for the purpose of, or in connection with, any legal proceedings (including prospective proceedings), obtaining legal advice or otherwise establishing, exercising or defending legal rights. Further exemptions are also available, including where the disclosure is required by or under any enactment, by any rule of law or by the order of a court (section 35(1)).
The application of data protection rules in the context of an investigation can be complex and as a result, transfer of personal data outside the EEA for storage or review for the investigation should be considered carefully to determine whether it is permitted by data protection law.
Yes. A document request will generally cover documents in the possession of the legal entity that holds the documents, irrespective of where they are located. The authorities may also seek documentation from overseas authorities.
Yes, the FCA, PRA and SFO may all conduct witness interviews, and all have statutory powers to compel a witness to answer questions at an interview.
The FCA's standard practice is generally to use its statutory powers to require the provision of information or the answering of questions in an interview. However, it does not do so in every case and in some circumstances the FCA may request a voluntary interview with a witness. This approach may be adopted where the witness is a suspect or possible suspect in a criminal or market abuse investigation (answers in a compulsory interview are generally not admissible in criminal or market abuse proceedings against the witness), where the witness is a third party with no professional connection to the financial services industry and in cases where the FCA is seeking information on behalf of a foreign regulator and a voluntary interview is more appropriate. The PRA’s statement of policy on conduct of interviews does not state whether the PRA will generally use its statutory powers.
Interviews will be both on the record and tape recorded. Witness interviews are not made public as a matter of course, but may become public if, for example, the contents of the interview are used in evidence in court proceedings or before the Upper Tribunal.
In a compelled interview there is no right to silence, and witnesses are required to answer questions.
While a witness is not required to participate or answer any particular question at a voluntary interview, FCA guidance makes clear that there may be circumstances in which an adverse inference may be drawn from the reluctance of a person to participate in a voluntary interview.
Witnesses are generally entitled (but not required) to be represented by counsel in any interview carried out by the FCA, PRA or the SFO pursuant to its powers under the Police and Criminal Evidence Act 1984. There is no right to representation at an interview conducted by the SFO pursuant to section 2 CJA, and the SFO considers that it has discretion whether or not to allow a lawyer to attend.
In practice, this representation is likely to be provided by independent external counsel. This will depend on the circumstances, the preferences of the witness and any conflicts issues that may arise.
Previous practice was that external counsel who are also representing the witness’s employer, or in-house counsel from the witness’s employer, could attend an interview. However, this may change in light of guidance issued by the SFO in June 2016 relating to the attendance of legal advisers at interviews conducted using its powers under section 2 CJA.
The guidance states that legal representation will be allowed if the SFO “believes it likely they will assist the purpose of the interview and/or investigation, or that they will provide essential assistance to the interviewee by way of legal advice or pastoral support”. The guidance also states that a lawyer who is not retained by the interviewee, or who owes a duty of disclosure to any other person who may come under suspicion (including the interviewee’s employer) is “unlikely to be allowed to attend”. Moreover, the guidance states that the lawyer may advise on matters relating to legal professional privilege but otherwise “must not do anything to undermine the free flow of information”, and may be excluded in the event of any perceived infraction.
It should be noted that the SFO guidance does not apply to FCA or PRA interviews, or interviews conducted by the SFO pursuant to its powers under the Police and Criminal Evidence Act 1984.
There is no specific right to challenge the investigation in court while it is ongoing, but depending on the circumstances, it may be possible to challenge the actions of the authority in court.
As an example, the FCA, PRA and SFO are all public bodies subject to judicial review and the subject of an investigation may, in appropriate circumstances, seek judicial review of their actions and decisions. In one recent case, an individual sought judicial review of the FCA’s decision to discontinue an investigation into his conduct because he wanted the opportunity to clear his name (R (Grout) v FCA  EWHC 596 (Admin)) and in another case the recipient of a notice requiring production of documents from the SFO sought judicial review of the SFO’s decision to issue the notice (R (BSGR Resources) v SFO  EWHC 1813 (Admin)).
In enforcement proceedings by the FCA and PRA, the enforcement investigators will generally set out their case in a formal letter or report at the end of the initial investigation phase. The subject of the investigation is entitled to formally respond, and the response will be taken into account by the RDC (in the case of the FCA) or the DMC (in the case of the PRA) when deciding whether to issue a warning notice.
There is a second opportunity to respond following receipt of the warning notice when the subject of the investigation is entitled to submit written representations and make oral representations to the RDC or DMC before a decision notice is issued.
There is no formal opportunity to challenge the SFO’s theories or allegations prior to the SFO bringing charges.
In addition, the subject of an investigation may submit documents or representations to the relevant authority informally at any time during the investigation.
Advocacy may take any form. Letters or formal submissions are typically used to respond to the investigators’ findings and to the warning notice. In addition, oral submissions can be made to the RDC or DMC following the issue of a warning notice. It is also possible to make presentations to the authorities, or make a without prejudice submission, or raise arguments in the context of settlement discussions.
If an enforcement matter proceeds to the Upper Tribunal, there are both written submissions and oral advocacy.
If representations are made to the RDC (in the case of the FCA) or DMC (in the case of the PRA), and the relevant authority decides to issue a decision notice, the representations will be summarised in the decision notice along with an explanation of the authority’s reasons for rejecting them. The summary is prepared by the relevant authority and does not constitute a formal admission by the investigated party. However, in practice, it would be difficult for an investigated party to abandon a position that has been asserted and published in this way in future proceedings.
A similar difficulty would arise with other statements or advocacy positions that became public (or were required to be disclosed in future proceedings). It should be noted that settlement discussions can be conducted on the basis that neither the authority nor the party may seek to rely against the other on any admissions or statements made in the discussions (EG 5.3.1). This is similar to a without prejudice settlement discussion. The English courts have held that the contents of settlement discussions will be protected from disclosure in subsequent proceedings, but that the protection may be lost in certain circumstances such as where the subject of the investigation puts the settlement discussions in issue in the proceedings (Property Alliance Group v RBS  EWHC 1557 (Ch)).
It should be noted that the FCA Enforcement Guide states that the FCA is not prevented from “following up, through other means, on any new issues of regulatory concern which come to light during settlement discussions” (EG 5.3.1).
For the FCA and PRA, the limitation period for disciplinary action against an individual pursuant to section 66 FSMA is three years in relation to misconduct that occurred before 25 July 2014 and six years for misconduct that occurred on or after that date. It should be noted that the regulators may issue a prohibition order at any time, including after the limitation period for disciplinary action has expired, as a prohibition order does not constitute a disciplinary action (section 64C FSMA).
There is no corresponding limitation period for disciplinary action against authorised persons pursuant to Part XIV FSMA.
In relation to the FCA and the PRA, the limitation period for disciplinary action against an individual pursuant to section 66 FSMA runs from the first day on which the regulator knew of the misconduct (section 66(4) FSMA).
There is no limitation period for criminal violations.
The FCA or PRA are required to issue a warning notice within the relevant limitation period. Subsequent representations and notices such as the decision notice and final notice need not be within the relevant limitation period, provided the warning notice was issued in time.
FCA and PRA procedures do not provide for tolling agreements to suspend the running of the limitation period.
The length of an FCA or PRA investigation depends on the stage at which the investigation is resolved. Relatively few PRA enforcement investigations have been concluded and published (ten as at the date of writing), however, FCA data shows that in 2015/16, the average length of an investigation for a civil or regulatory case was:
FCA data shows that the average length of a criminal case pursued by the FCA is 16 months (2013/14: 32 months).
SFO investigations may take in the region of four to six years, though, as an example, the 2015 conviction of an individual following a jury trial relating to LIBOR came approximately three years after the SFO opened its investigation.
If an FCA or PRA investigation is discontinued before a warning notice is issued, there is no requirement to notify the subject of the investigation that it has been discontinued. However, FCA guidance states that where it has given a person written notice that it has appointed an investigator and later decides to discontinue the investigation without any present intention to take further action, it will confirm this to the person concerned as soon as it considers it is appropriate to do so, bearing in mind the circumstances of the case (EG 4.5.1).
Where a warning notice or a decision notice has been issued, and the FCA or PRA decides not to take any the action proposed, the FCA and PRA are required to issue a notice of discontinuance unless the discontinuance resulted from an application made by the subject of the investigation (section 389 FSMA). As a matter of practice, FCA guidance states that where it has published a warning notice statement (ie, a summary of a warning notice) and subsequently decides not to take any further action, or where it has published a decision notice and the subject of enforcement action successfully refers the matter to the Tribunal, the FCA will make it clear on its website that the warning notice or the decision notice no longer applies. The FCA will normally do this by publishing a notice of discontinuance with the consent of the party (EG 6.2.19).
Settlement or resolution discussions may take place at any time, and may be initiated by either the authority or the subject of the investigation.
In an FCA investigation, settlement discussions will often take place after the FCA has completed its investigation and provided a Stage 1 Letter to the subject of the investigation, which sets out the FCA’s preliminary findings and view of the appropriate penalty. A 30 per cent discount on any financial penalty is available where the investigation is settled before the end of a settlement period that will be stated in the Stage 1 Letter (typically 28 days). The PRA enforcement process also provides for settlement discussions to take place at this stage and a 30 per cent discount on any financial penalty is also available.
In relation to civil enforcement investigations, the decision to proceed and the nature of the allegations made against the subject is made firstly by enforcement staff and then by the RDC (in the case of the FCA) or the DMC (in the case of the PRA).
In a criminal investigation by the SFO, the decision to proceed with charges and what charges to select is taken by SFO staff.
Both the FCA and PRA have published guidance on the factors they will take into account when deciding whether to take action in a particular case (DEPP 6.2 and PRA Statement of Policy on the Imposition and Amount of Financial Penalties under the Act). While the precise formulation of the factors varies between the FCA and PRA statements of policy, relevant factors can be summarised as including:
The method for determining the amount of any financial penalty is described in question 38.
In a criminal case, the prosecuting authority will make charging decisions in accordance with the Code for Crown Prosecutors, which requires the prosecutor to be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge (the evidential stage), and consider whether a prosecution is required in the public interest (the public interest stage).
At the evidential stage, the following factors are relevant:
At the public interest stage, the prosecutor is required to consider each of the following questions:
The FCA has a range of enforcement remedies open to it, including a private warning, public censure, financial penalty, restricting a firm’s permissions and prohibiting a firm or individual from involvement in regulated business.
Where a financial penalty is proposed, the FCA’s approach to the amount of the penalty depends on when the conduct took place.
In respect of conduct prior to 6 March 2010, the FCA will consider all of the relevant circumstances to determine an appropriate and proportionate financial penalty. The FCA’s rules provide a non-exhaustive list of factors that go towards determining the appropriate level of penalty. These include: the deterrent effect of the penalty; the nature, seriousness and impact of the breach; the extent to which the breach was deliberate or reckless; the size and financial resources of the subject of the penalty; the amount of any benefit gained or loss avoided as a result of the breach; conduct following the breach; the disciplinary record and compliance history of the subject of the penalty; and other action taken by the FCA in other cases.
For conduct from 6 March 2010, the FCA operates a penalty regime under which financial penalties may comprise two elements: (i) disgorgement of any benefit received as a result of the breach and (ii) a penalty reflecting the seriousness of the breach. The second part of the penalty may, if appropriate, be calculated by reference to a metric such as the revenues derived by the subject of the penalty during the period of the breach from the products or business areas to which the breach relates. The FCA will then take a percentage of the relevant revenue, ranging from zero to 20 per cent in 5 per cent increments, depending on the seriousness of the breach. The resulting penalty may then be adjusted to reflect any mitigating or aggravating factors, and it may be increased if the FCA considers that it is insufficient to deter the subject or others from committing future breaches.
In relation to conduct both pre and post 6 March 2010, discounts up to a maximum of 30 per cent are available for early settlement.
The PRA penalty calculation methodology is similar to the FCA regime for post 6 March 2010 conduct.
In FCA or PRA enforcement actions, they are disgorged as part of the penalty calculation, where the authority will attempt to quantify any benefit received or loss avoided as a result of the breach.
In criminal cases, there are procedures for the proceeds of crime to be confiscated.
Yes. However, a company will generally be liable only for the acts of its directors, managing director and other superior officers who carry out the functions of management and speak and act as the company.
Yes. The FCA and PRA may adjust penalties to reflect the degree of cooperation showed by the subject of the enforcement action during the investigation. This may operate as a mitigating factor or an aggravating factor. In order to receive a reduced penalty on this ground, a high degree of cooperation, going beyond what would generally be expected, will be required.
The FCA also operates a discount scheme for early settlement. The maximum available discount is 30 per cent where the investigation is settled before the end of a settlement period that will be stated in a Stage 1 Letter from the FCA setting out its preliminary findings (typically 28 days). A 20 per cent discount is then available until the time that the subject of the investigations makes written representations in response to a warning notice (or the expiry of the period for written representations). Finally, a 10 per cent discount is available until the decision notice is issued. No discount is available once a decision notice has been issued. The PRA operates a similar scheme.
Deferred prosecution agreements are available in criminal investigations pursued by the SFO, but not in relation to civil or regulatory investigations by the FCA or PRA.
To date, the SFO has entered into deferred prosecution agreements with two companies in relation to bribery-related allegations.
Deferred prosecution agreements must be approved by the court. Other settlement agreements, including with the FCA and PRA, do not require court approval.
For FCA and PRA investigations, a settlement usually will result in a public notice being issued by the relevant authority that will set out the facts found by the authority that give rise to the penalty. However, the firm is not required to admit the facts or wrongdoing found by the authority.
A deferred prosecution agreement with the SFO will include a statement of facts setting out the particulars of each alleged offence. There is no requirement for formal admissions of guilt, but the subject of the deferred prosecution agreement will be required to admit the contents and meaning of key documents referred to in the statement of facts.
Yes. FCA and PRA findings can be challenged both through administrative processes and in the Upper Tribunal. The Upper Tribunal may be appealed to the Court of Appeal, which in turn may be appealed to the Supreme Court, the final appeal court in the UK.
The consequences of a decision being reversed on appeal by the Court of Appeal or the Supreme Court will depend on the issue in the appeal. In some cases, an appeal may be on a point of law in which case the decision may be remanded for further proceedings. In some circumstances, the case may be dismissed entirely.
In most cases, enforcement action will be public and may, in addition, trigger disclosure obligations where the subject of the investigation is a listed company.
Where an enforcement action ends in a criminal conviction, there may be restrictions on the subject of the conviction bidding in public procurement exercises.
Where an enforcement action ends in a criminal conviction, there may be restrictions on the subject of the conviction bidding in public procurement exercises.
Yes. The interaction between private litigation and investigations by the relevant authorities can be complex, and there are particular risks around issues relating to the investigations being (or becoming) subject to disclosure and inspection in related litigation.
Findings by authorities in other jurisdictions may be admissible in evidence in private proceedings, but their effect will depend on the specific facts of the case. They would not bind an English court.
Private plaintiffs may seek disclosure of materials disclosed to the authorities, and may be able to obtain such disclosure if the materials are relevant to the private proceedings. However, disclosure would normally be sought from the defendant in the litigation rather than from the authorities. To obtain disclosure from the authorities, the private plaintiff would be required to make an application for non-party disclosure, which would require the private plaintiff to show that the documents are likely to support its case or adversely affect the case of one of the other parties to the proceedings, and that disclosure is necessary in order to dispose fairly of the claim or to save costs (CPR 31.17(3)).
It should be noted that the English courts have confirmed the contents of settlement discussions will be protected from disclosure in subsequent proceedings, but that the protection may be lost in certain circumstances such as where the subject of the investigation puts the settlement discussions in issue in the proceedings (Property Alliance Group v RBS  EWHC 1557 (Ch)).
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