Following criticism from a judicial review of an enforcement case, the UK’s Financial Conduct Authority (FCA) said that it is reforming its approach to making disclosure to the targets of disciplinary cases.
Back in 2023, the Upper Tribunal upheld an appeal of an FCA enforcement case, which alleged that a trio of bank executives acted improperly when they were involved in a finder’s fee arrangement with a person connected with the Russian oil giant, Yukos Group.
The FCA alleged that, as part of the arrangement, Yukos companies were charged excessive commissions on foreign exchange transactions, and that the profits were shared between the bank and the finder.
“These fees were improper and together with the uncommercial FX transactions showed a lack of integrity in the way in which [the bank] was undertaking this business,” the FCA said.
In 2022, the FCA sanctioned the bank, Julius Baer International Ltd, which accepted a settlement with the regulator.
The FCA fined the bank £18 million for its misconduct, and also issued orders prohibiting three bankers from the industry for their role in the arrangement.
However, the tribunal rejected the FCA’s orders banning the bankers, and overturned the regulator’s findings that they acted without integrity. It also recommended that the regulator review its enforcement disclosure processes after finding failings in this and other previous enforcement cases.
The tribunal said that it is “exasperating that basic errors still seem to occur,” with the disclosure process in FCA enforcement cases — including the FCA failing to disclose evidence that potentially undermined its case against the bankers.
“There are only so many times that the authority can apologize for its failings, insist that lessons have been learned and then expect that those affected should simply move on,” it said in its ruling.
Given the repeated issues with disclosure in enforcement cases, the tribunal said that this is, “a matter that the Authority should review in the light of the failings identified in this decision, particularly the unacceptable late disclosure which occurred after the conclusion of the hearing of these references.”
It also criticized other elements of the case, but declined to make any formal recommendations to the FCA on those aspects of the case.
Today, the FCA announced that it has completed the recommended review, and has made a number of changes, including taking “a broader approach to disclosure…”
The regulator also committed to enhancing its employees’ training on disclosure; providing its staff with more detailed guidance; and emphasizing the importance of disclosure in measuring and rewarding staff performance.
“We are required to disclose all documents on which we rely to build regulatory enforcement cases, as well as any other material which in our opinion might undermine our decision to take action,” the FCA said — adding that its new approach will include disclosing all material that would potentially undermine its case, along with information that supports it.
“Overall, the aim of our changes is to improve the quality of our disclosure by providing greater support for case teams,” it said.
The FCA said that it will “closely monitor the effectiveness” of these new processes, and will review them again in 12 months to determine whether further action is needed.