“Naming and shaming”: The UK Financial Conduct Authority backs down

Most recently, the proposals were the subject of a report by the House of Lords Financial Services Regulation Committee (FSRC), reprovingly entitled “Naming and shaming: how not to regulate”, which highlighted issues not only with the proposals themselves, but also with the way the FCA has gone about them. 

The FCA’s central proposition was to change the test for announcing the opening of an enforcement investigation, including the name of the firm under investigation, from doing so in “exceptional circumstances” (the current approach), to deciding whether to announce using a public interest test.  

On 12 March 2025, in a seemingly unprecedented turn of events, the FCA published a statement announcing that it will not be taking forward these proposals.  Senior management in financial services firms across the country could almost be heard heaving a collective sigh of relief. 

In a letter to the Treasury Select Committee the FCA confirmed that it still plans to proceed with certain limited aspects of its proposals “where there is broad support and much less concern” including:  

• Reactively confirming investigations which are officially announced by others, typically market announcements or other disclosures made by firms themselves or sometimes announcements by a partner regulator. 
• Public notifications which focus on the potentially unlawful activities of unregulated firms and regulated firms operating outside the regulatory perimeter, where doing so protects consumers or furthers the investigation.
• Publishing greater detail of issues under investigation on an anonymous basis, perhaps via a regular bulletin such as Enforcement Watch. 

In this article, we review what has led to this point and what lies ahead, before considering what might be behind the FCA’s change of mind.

A recap

CP24/2

The proposals have, to date, been the subject of two FCA consultations. Through the first consultation, CP24/2, published on 27 February 2024, the FCA made its intentions known for the first time.   

Notably, the FCA’s new public interest test did not take the impact of the firm under investigation into account, and only gave firms 24 hours’ notice of the FCA’s intention to announce, leaving little time for the firm to make representations. 

There had been no prior public notification of the consultation, and it had not appeared on the FCA’s Regulatory Initiatives Grid, as is customary for upcoming FCA initiatives.  It was received with universal surprise and consternation by the financial services industry, and also by Government. 

CP24/2 Part 2

Swayed by the force of the unfavourable reaction to its plans, on 28 November 2024, the FCA launched a second consultation, CP24/2 Part 2, which revised, and softened, its initial proposals. It closed on 17 February 2025.  Key changes included: (i) taking the impact of the announcement of an investigation on the firm, and also on the wider financial markets, into account as part of the public interest test; (ii) extending the notice period of an announcement from 24 hours to ten days (with a further two days’ notice of publication, in the event that the FCA decides to publish); and (iii) confirming that the proposals would not apply to ongoing investigations. 

In its second consultation, the FCA attempted to justify its change in approach by advocating that the current “exceptional circumstances” test, under which the FCA explained that it evaluates what is “exceptional” against cases within its current portfolio, is not broad enough to allow it to publish certain investigations which it considers should be disclosed in line with its statutory objectives. It added that, whilst the change would not involve a significant increase in the number of announcements, it would nevertheless double the amount of announcements it might make.  

The FSRC report

On 6 February 2025, the FSRC published a report on the FCA’s proposals. Using evidence gathered from a call for evidence launched in May 2024¹, the FSRC cast a critical eye over the main issues arising from the FCA’s proposals, including the extent to which the revisions set out in its second consultation addressed stakeholders’ concerns.  The FSRC found that there was still much in the FCA’s proposals that remained open to challenge.

Amongst many other concerns, the FSRC remained unconvinced by the FCA’s justification for change. It said that it was unclear why an immediate risk of consumer harm would not be considered an “exceptional circumstance” under the FCA’s current test which would demand disclosure of an investigation, and why a broader interpretation of “exceptional circumstances” could not be considered in place of the proposed public interest test. 

Ultimately, the FSRC was of the unequivocal view that if the FCA could not find an acceptable balance between the potential benefits for consumer protection on the one hand, and managing the potential risks to firms, individuals and market stability on the other, it should not proceed with its proposed change. It set out a list of recommendations for the FCA aimed at ensuring the FCA addressed its concerns.  

In its report the FSRC also drew out serious wider concerns about the FCA’s own internal processes which came to light from the way in which the FCA had gone about the proposals (as alluded to in the title of its report, “how not to regulate”).  Indeed, the list of the FSRC’s recommended action points went beyond the proposals themselves and addressed shortcomings in the FCA’s overall approach and the internal systems which underpin it.

The FSRC also noted that the FCA was surprised by the strength of reaction to its proposals and that this “suggests a worrying disconnect with industry on the part of senior FCA leadership”. It stated that, had the FCA conducted adequate engagement in the development stage of its proposals, it could have avoided “a lot of unnecessary controversy and damage to the sector’s confidence in the regulator”. 

It seems the FSRC’s report may have been the final nail in the coffin.  On 12 March 2025, the FCA announced it would not be taking forward its proposal to change the test for announcing investigations into regulated firms.

What lies ahead

The FCA says that it expects to continue to engage actively with stakeholders before publishing a final policy statement by the end of June, alongside an updated copy of its Enforcement Guide.  

There are also remaining action points for the FCA from the FSRC’s report which go to the wider issue of how the FCA has dealt with these proposals.  In its report the FSRC recommended that the FCA should: 

• Publish a “lessons learnt” document from this process, setting out “where it went wrong” and how it will prevent “similar mistakes” from occurring in the future. 
• Ensure that consultations are properly registered on the Regulatory Initiatives Grid, and review its internal processes to ensure that earlier engagement with the financial services sector is carried out when appropriate.
• Change its policy of producing a cost benefit analysis only for rules and guidance on rules.

The FCA has confirmed, in a letter to the FSRC dated 11 March 2025, that it will “provide a formal response to each of the recommendations…in advance of the final policy statement”.

Why the FCA may have changed its mind

The FCA has not given any specific reasons for its change of mind, other than to refer to the “lack of consensus” to its plans.

Given the FSRC’s concern of the FCA’s “worrying disconnect” with industry, the FCA may have seen an opportunity to directly address this criticism and demonstrate that it is, indeed, listening to and taking on board the views of those it regulates (although it has taken two consultations and Parliamentary intervention to get there).  In January 2025, the FCA’s Chief Executive, Nikhil Rathi, took part in a podcast and spoke of the regulator shifting the way it regulates, moving away from detailed rules to outcomes-focused regulation which requires, in his own words, “a different relationship with firms”.² Essentially, this is a relationship of trust and co-operation which allows the FCA to move away from prescriptive rules to rules which are based on the expectation that firms use their best endeavours to deliver on outcomes.  The Consumer Duty is the most prominent example of this type of rule to date, and the FCA has indicated that its forthcoming rules on non-financial misconduct will also be in this vein. The FCA may well have weighed up whether the benefit to be gained by its proposals was worth the potential damage to its relationship with firms, which is integral to the way in which it wants to regulate.

Moreover, the FCA’s move towards less prescriptive rules, and indeed the abandonment of its plans to “name and shame”, is in line with the government’s current focus on growth, the premise being that less regulatory burden on firms frees up their time and resources to focus on innovation and expansion, and makes it easier for new businesses to start up.  In a policy paper entitled “New approach to ensure regulators and regulation support growth”, published on 17 March 2025, the government sets out a three-point action plan in support of its growth mission, the first of which is to tackle the complexity and burden of regulation.  

Commentary

The question arises whether the FCA considers that it will still achieve what it set out to achieve whilst being seen simultaneously to appease the industry and Government. The FSRC itself questioned why the FCA could not employ a broader interpretation of its current “exceptional circumstances” test to announce more investigations, which could be interpreted as tacitly endorsing the FCA’s adoption of this approach and ultimately paving the way for the FCA to do this.  Certainly, the FCA’s stated interpretation of its current test, to judge what is exceptional against its own caseload, is narrow and self-limiting.  If this is indeed what the FCA is considering doing going forward it will be interesting to see whether it expressly announces that it will be employing a policy change or whether it will simply do this “behind the scenes”.  If there is one thing the FCA should have learnt from this whole process it’s that being open with the firms it regulates is paramount.

A version of this article appeared on Law360 on 20 March 2025.  

If you would like to discuss this article or any of the issues raised, please get in touch with your usual contact at Hogan Lovells or one of the contacts listed.  Hogan Lovells responded to both FCA consultations. Our response to CP24/2 can be found here, and our response to CP24/2 Part 2 can be found here. 

Authored by Daniela Vella and Elaine Penrose.