On 6 February 2025 the House of Lords Financial Services Regulation Committee published its report entitled ‘Naming and shaming: how not to regulate’ on the FCA’s November 2024 CP24/2, Part 2 regarding the controversial ‘name and shame’ proposals (which we summarised here). Responses to the FCA’s consultation are due next Monday 17 February and to assist those responding, we have summarised the below the key points from the report.

In the report, the Committee states that it remains ‘deeply concerned’ about what has happened over the course of the consultation and that it does not consider that the FCA has yet made a convincing case for a change to its existing powers. In addition, the Committee is not yet persuaded that the FCA’s proposed new public interest framework strikes an acceptable balance between realising the potential benefits to consumer protection, and managing the potential risks to firms, individuals and market stability. In the Committee’s view, if the FCA is unable to find this balance in the proposals, it should not proceed with the proposed changes.

The Committee’s thoughts on the revised proposals include the following points:

1. Existing power are sufficient
   The Committee states that it is still unclear why – if there is an immediate risk of consumer harm – it would not be considered an ‘exceptional circumstance’ which would demand disclosure of an investigation and, as a result, the Committee remains uncertain why a broader interpretation of ‘exceptional circumstances’ could not be considered in place of the proposed public interest test. The Committee states that, following the closure of the second consultation, the FCA must be able to demonstrate that the additional detail it has provided to justify this shift in approach has reassured stakeholders that this change is both proportionate and necessary. 
    
2. Reputational damage for senior managers has not been addressed
   The Committee notes that the second consultation does not contain any proposed measures to address the concern that senior managers connected to firms where investigations are announced could be identified through the Senior Managers and Certification Regime or otherwise. Whilst the Committee recognises that the proposals do not extend to naming individuals under investigation publicly, it believes that there is a serious risk inherent in the proposals that senior managers and other key individuals involved in a firm under investigation can be readily identified, for example through the FCA register. In the Committee’s view, this potentially exposes individuals to reputational damage regardless of the outcome of the investigation. 
    
3. Further information on the public interest test is needed
   Although the new factors added to the public interest framework provide more clarity on how decision-making would progress, the Committee considers that the second consultation contains little information on how the factors would be applied in practice and what guardrails would be put in place to ensure fairness and consistency over time in the process of selecting investigations for publication. For example, how would the FCA evaluate the impact that it now recognises the announcements may have on firms and financial markets. The Committee believes that greater transparency in these processes is key to ensure that firms have confidence in the fairness of the regulatory framework. In its view, before any final decisions are taken to proceed with the proposals, the FCA must demonstrate that its proposed new regime is underpinned by robust, fair and proportionate processes for the assessment of the public interest. The Committee suggests that further guidance on how the factors contained in the public interest framework will work in practice should be published, before any final decisions are taken.
    
4. Potential lack of alignment with international competitiveness and growth objective
   The Committee remains unconvinced by the explanation offered by the FCA on how the proposals align with its secondary international competitiveness and growth objective. In the Committee’s view, the FCA’s assertion in its first consultation that its proposals would be consistent with approaches taken by other international regulators was misplaced and misleading and the Committee highlights that the FCA has changed its narrative on this, from emphasising commonality with other regulators in its first consultation, to highlighting the uniqueness of their remit in the second. The Committee states that concerns that announcing investigations at the outset will impact on the UK’s competitiveness and risk positioning the UK as an outlier are warranted, and that the FCA should carefully consider the ways in which its proposals might adversely impact its secondary objective before it proceeds with implementing any changes to its enforcement regime.
    
5. A cost benefit analysis should be carried out
   Given the enforcement investigation proposals represent a significant departure from the FCA’s previous approach, it remains the Committee’s firm view that proposed changes of this extent necessitate a robust and detailed analysis of the direct costs to the sector.  

The Committee additionally comments that the FCA should ensure that consultations are properly registered on the Regulatory Initiatives Grid. It should also review its internal processes to ensure that earlier engagement with the sector is carried out when appropriate.

Overall, whilst it is clear that the FCA has taken note of the responses it received to its first consultation and there have been resulting key improvements to the original proposals, it appears that there remains more for the FCA to do to address remaining concerns. We will continue to monitor developments in this area – please do reach out if you would like to discuss any of the points raised.