This judgment marks the first detailed judicial analysis of when the FCA may name a firm under investigation in “exceptional circumstances” and reminds firms that publicity of enforcement investigations can come fast and with limited notice. Preparedness and early engagement with the FCA about publicity therefore remain essential.
Background to the FCA’s publicity powers
The FCA previously proposed, and then abandoned, controversial plans to “name and shame” firms subject to enforcement investigations. However, the FCA retained its narrower, pre-existing power to announce investigations in “exceptional circumstances”.
The FCA’s Enforcement Guide (ENFG 4.1.4) sets out when “exceptional circumstances” may exist—namely, where a public announcement is “desirable” to maintain public confidence in the financial system or the market, protect consumers or investors, prevent widespread malpractice, assist the FCA’s investigation (for example, by encouraging witnesses to come forward) or maintain the smooth operation of the market.
Historically, the FCA used this power very sparingly. However, after the FCA discontinued its bolder publicity proposals earlier this year, we predicted that the FCA may start to lean more heavily on and, potentially, test the boundaries of this “exceptional circumstances” test.
Grounds for CIT’s judicial review
The FCA opened an investigation into CIT. The judgment does not disclose the subject matter or triggers for the investigation to preserve CIT’s anonymity, but the High Court’s comments point to consumer protection concerns.
The FCA proposed to announce its investigation and identify CIT as its subject. CIT objected, arguing that naming it would be unlawful and unreasonable, and that the FCA had materially misinterpreted the publicity provisions in its Enforcement Guide. On that basis, CIT sought judicial review of the FCA’s decision to identify it as the subject of an enforcement investigation.
The High Court’s decision
The High Court dismissed CIT’s judicial review, holding that there was no material misdirection in the FCA’s interpretation of the Enforcement Guide and no unreasonableness in either its decision or reasoning.
Perhaps recognising that challenging the FCA’s judgment as to whether or not it was reasonable and appropriate to disclose CIT’s identity was going to be difficult, CIT’s primary ground of challenge was that the FCA’s decision was unlawful on the basis that it has misinterpreted the provisions of its own Enforcement Guide as to when an investigation should be announced and when the name of the firm under investigation should be disclosed.
The lawfulness challenge focused on the following points as to how the FCA should apply its “exceptional circumstances” test when deciding whether to name a firm under investigation, which the Court confirmed in its judgment:
- First, “exceptional” is measured against investigated situations rather than regulated situations more broadly. As the High Court put it: “You start with investigations. You ask whether this is an exceptional investigation. So, it would be a mistake to say: this is exceptional because it is so serious as to warrant investigation. That may make it an exceptional regulated-situation. It would not be an exceptional investigated-situation”.
- Second, the “desirability” of naming a firm under investigation must be weighed against both alternatives: no announcement at all, or an anonymised announcement that confirms an investigation without identifying the firm.
- Third, reasons advanced by the FCA to justify naming a firm under investigation must be relevant to whether the firm should be publicly identified. It is insufficient for the FCA to rely on considerations that merely support making some form of announcement.
Crucially, the High Court rejected CIT’s argument that members of the FCA case team had misunderstood the above points in preparing a memorandum which recommended that CIT be named. Accordingly, the challenge on the lawfulness ground failed.
In relation to the reasonableness challenge, the High Court noted the well-recognised test that the claimant had to show that the decision was unreasonable “in the sense either that it is outside the range of reasonable decisions open to the decision-maker or that there is a demonstrable flaw in the reasoning which led to the decision”. Consumer protection was central to the High Court’s reasoning. The FCA assessed that timely communication of the fact that CIT was being investigated was required “sooner and not later” to enable CIT’s customers to consider their positions in light of how they became customers.
The High Court was not prepared to interfere with the FCA’s judgment that naming CIT was the most effective way to ensure customers were adequately informed, and that such consumer-focused reasons can justify identification even where prejudicial to the firm. Further detail may emerge if and when the full facts of the FCA’s investigation into CIT are disclosed, though that may not be imminent given CIT has sought permission to appeal.
Although the High Court ultimately sided with the FCA, it observed that elements of the FCA’s decision-making process were open to criticism, particularly the absence of a two-step analysis in its documented reasoning—first deciding whether to announce the fact of the investigation and then deciding whether to also identify CIT as the subject of that investigation.
The contemporaneous records referred to in the judgment suggest that the FCA case team initially did not recommend naming CIT, and that this position shifted following interventions from more senior stakeholders. However, the High Court ultimately determined that the FCA’s decision to publicly identify CIT as the subject of its investigation was “within the range of reasonable decisions open to the decision-maker” and that there was “no demonstrable flaw in the reasoning process”.
Why this judgment matters
This judgment offers the first detailed analysis of how the FCA applies its “exceptional circumstances” test when deciding whether to identify a firm under investigation.
More broadly, the judgment underscores the high bar for judicial intervention in this area. While the court will assess the proper interpretation of the FCA’s Enforcement Guide, it will not readily substitute its view for the FCA’s evaluative assessments on exceptionality, desirability, and the form and timing of announcements, reflecting the division of responsibility between the regulator and the court.
Practical implications for firms
- Ask the publicity question early: Firms notified of an FCA enforcement investigation should promptly seek clarity on whether the FCA intends to announce the fact of the investigation and identify the firm. Early engagement allows for advance preparation and, where appropriate, timely challenge to any proposed publicity.
- Timeframes may be short: Although the FCA once proposed giving at least ten days’ notice before naming a firm under investigation, CIT received only 24 hours’ notice in this case. The reasons for this approach are unclear, but this serves as a reminder that the FCA may move quickly when it decides to publicise a firm under investigation.
- Prepare for publicity: Even if the FCA does not identify a firm at the outset, it may do so later. Firms should maintain pre-emptive communication plans and draft announcements in anticipation of potential publicity before the conclusion of an investigation.
