In February, the Financial Conduct Authority published proposals to make far more of its investigations public than it ever has before. The proposals have triggered debate and a certain amount of alarm. Some believe this will mean greater protection for consumers. For others, it will represent a punishment for firms before the regulator has had a chance to make a proper judgement. The debate raises interesting questions about both reputational and regulatory risks.

It is difficult for the FCA to strike a perfect balance on this issue. If it publishes information about a firm under investigation and the firm is later cleared of any wrongdoing, the regulator could be accused of damaging consumer trust in a well-run firm.

For a firm that is under investigation, in some ways the situation is more difficult to manage than it is for a firm that has had a fine. The imposition of a sanction is final and allows a firm to share its plans about how it is moving on. An announcement about an investigation carries more uncertainty and gives fewer opportunities to present a detailed plan for the future.

However, the FCA also faces criticism if it withholds information until an investigation is complete. Consumers will feel aggrieved if they think the watchdog should have given them all the information it knew about a firm before they signed a contract. This can reduce trust in the market as a whole.

In addition to the risk of consumers feeling left in the dark, where the FCA only voices general concerns about conduct across a sector, the media can quickly put two and two together and get five, six or even eleven. These proposals could actually protect well-run firms from being wrongly identified as at risk from censure.

The FCA is right to stress: “We will also state clearly that announcing an investigation does not automatically mean we have decided that there has been misconduct or breaches of our requirements and we will be transparent when we close cases with no outcome.”

For the FCA’s proposed approach to work, it must ensure that it moves quickly to rebut any biased or unreasonable interpretations of the information. Any insinuations based on inflating the significance of an investigation have the potential to undermine trust in the regulator, as well as firms, and the FCA should have a detailed communications strategy to ensure misinformation is not spread. Simply issuing disclaimers is unlikely to prevent misinterpretation.

Being an authorised firm gives a sense of security to consumers and it is understandable that the FCA should look to manage this signal to the market by using as much transparency as possible. But it should also be possible for regulators and firms to work together to portray the investigative process, as it really works in the vast majority of cases as a rational and adult exchange of information and views designed to reach certainty in a complex market.

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