Have you seen the FCA’s latest publication on current enforcement triggers?

Enforcement is probably not going to be any regulated firm's favourite topic, but the way to put a positive and purposeful spin on it, is this: be proactive in doing all that you can to avoid it. Specifically, “do the right thing” and you are likely to be able to avoid it. These intentions are clearly reflected in the FCA's most recent publication on the topic: “Enforcement Watch”. 

This post is intended to provide some insight into the content of this new publication and goes on to look at some of the most recent enforcement activity that has been in the regulatory news.

Enforcement Watch

The first edition of Enforcement Watch was published at the end of January. It is a new form of supervisory publication which may go in some way to filling the gap left behind by the FCA's halt on the publication of portfolio letters. Portfolio letters were one way in which the FCA communicated its views on the risks associated with particular sectors of the market but reached an end last April. This new publication could mark the beginning of a more efficient form of market communication designed to increase transparency levels around active enforcement investigations.

Key themes: transparency, education, deterrence

The content of the first edition of Enforcement Watch takes a leap forward in open communication on what the FCA perceives to be the current enforcement risks evident in the market. Specifically, it provides clear examples of those areas where the FCA considers that supervisory concerns convert into enforcement risk. This intelligence will help firms to understand the FCA's current enforcement priorities and amend any behaviours that do not seem to be on the right side of the line accordingly and, importantly, before they become more of a problem.

In that sense, Enforcement Watch is not just for interesting, easy reading. It is intended to have a preventative impact and has both educative and deterrence functionality. It is a clear steer for all regulated firms as to where enforcement risks might take defined shape. From a wider angle, it sits alongside the FCA's broader regulatory supervisory and policy objectives. Specifically, it is designed to co-exist with the FCA's updated Enforcement Guide (published last June).

Active investigations

The numbers reveal that 23 enforcement investigations were opened in the second half of last year. A closer look reveals: 

• six investigations into individuals (including into regulatory failings that include the provision of false information to the FCA, suspected fraud and misappropriation of funds);
• three investigations into listed issuers (relating to market abuse issues);
• two investigations into unauthorised business activity (with a focus on the crypto asset sector where entities not registered under the MLR are suspected of providing crypto asset services);  
• 12 investigations into authorised firms (one of which has been named pursuant to the “exceptional circumstances” test in order to protect consumers by ensuring the provision of clear and timely information); and
• two investigations into insurers (flagged as the “most serious cases” identified in the FCA's multi-firm work and both relating to the Consumer Duty). 

An even closer look reveals that 18 of the active investigations consider regulatory breaches, four consider regulatory and criminal offences, and one relates to criminal offences only. In relation to the regulatory offences:

• six concern potential breaches of the Consumer Duty with a focus on fair value;
• a number relate to systems and controls failings “where authorised firms may have caused harm through inadequate oversight of systems or relying on third party providers that did not meet standards”;
• a number relate to concerns around the adequacy of financial crime controls; and
• five concern the “consumer investment and asset management sectors” specifically, misleading or false statements provided to consumers and third parties, and failings to recognise conflicts of interest. 

Of the five active investigations in the asset management and consumer investment spaces, it is worth shining a spotlight onto the issues that feature prominently in those investigations, and they are these:

• Misleading statements: The FCA requires openness, clarity, and transparency in all communications. That includes, for example, all fund documentation, disclosures, risk descriptions, and communications with advisers and platforms. It also includes all communications with regulators and counterparties. What firms say, or fail to say, is critical. Also critical, are the underlying governance issues that drive what firms say. In short, your communications are a key enforcement risk; and
• Conflicts of interest: The FCA requires appropriate conflicts policies to be in place. However, this is only the first step. Policies must also be shown to work in practice. The FCA will focus on failures to identify, and manage or disclose, conflicts of interest. The FCA will want to know whether a firm can identify conflicts, whether it has effective mitigation measures, that these can be evidenced, and that where conflicts cannot be avoided they are disclosed. 

Any firm that has concerns around its communications or its management of conflicts, would be advised to consider these concerns as potentially serious conduct issues that create enforcement risk.  

Key messaging: enforcement triggers 

In terms of what “doing the right thing” might entail and focusing on some practical takeaways, these three pointers are a good place to start:

• Good governance really matters: governance failures are an enforcement risk and your governance, your conduct, and your culture in action, may well be judged through an enforcement lens in years to come. The FCA's expectations around the foundations of good governance are becoming more visible;
• Conduct, candour and oversight: these individual and collective qualities are fundamental, and the FCA is increasingly vocal about its stance on the importance of them; and
• Outcomes focus: aside from the specific focus areas of financial crime and market integrity, the ongoing regulatory focus is on consumer outcomes.  Are you sufficiently outcomes focused? Is the importance of the Consumer Duty sufficiently embedded throughout your firm?

Where the line is crossed

For any firm that finds itself in a space where supervision has crossed a line into intervention, the core fundamentals will be its preparedness to engage openly and honestly with the FCA, and its preparedness to remediate. Enforcement Watch notes that the FCA has, in some of the active Consumer Duty-related cases, used supervisory tools (i.e. VREQs and OIREQs which you can read more about in my blog on 2025's enforcement trends) to “protect consumers while investigations continue”. This is one of the key junctures at which it is paramount that firms “do the right thing”. 

Recent enforcement activity

During February there was also news around a number of enforcement activity hot-spots:

• Interventionist supervisory action: Wealth management was once again in the spotlight when an independent financial advisor was named as the subject of a restriction preventing it from carrying on regulated activities and imposing asset restrictions. The FCA's concerns focus on whether the firm is conducting its affairs in a sound and prudent manner. Specifically, the treatment of customers who have had investments moved into cash, the maintenance of an appropriate level of financial resources, and the requirement to be open and co-operative with the FCA;
• Skilled person reviews update: The quarterly statistics on skilled person reviews were updated and show a strong focus on “controls and risk management frameworks”, “financial crime”, and on “governance, accountability, strategy and culture”;
• Sanctions for a financial adviser and a fund manager: A long-running action ended with the Upper Tribunal upholding the FCA's decision to fine and ban a financial adviser and a fund manager who, together, let consumers down and made profits from their actions. The details reveal that the individuals concerned “recklessly” exposed pension holders to unsuitable investments, switching pension funds into unsuitable, high-risk investment portfolios while reporting to consumers that the portfolios were low or medium-risk, and using terminology such as “cautious” and “balanced” in communications to consumers. The case also involved the failure to co-operate with the FCA's investigation. The FCA delivered a clear signal that it will not tolerate such conduct;  
• Cryptoassets: The FCA has commenced its first criminal enforcement action against a global crypto exchange for illegally promoting crypto asset services to UK consumers. The exchange in question has, to date, failed to engage with the FCA and, despite warnings, has continued to publish financial promotions in breach of the relevant rules; and
• Finfluencers: The finfluencer trials have concluded with all seven influencers pleading guilty to the count of issuing unauthorised financial promotions. A much-quoted line from the FCA's enforcement team is this: "These influencers betrayed the trust of those who followed them……We’ll continue to work with responsible influencers and go after those who put the financial wellbeing of their followers at risk.” 

I am long overdue a fresh edition of my “Learning from the mistakes of others…” series which examines the details of enforcement outcomes much more closely. This bulletin, which is intended to take a view on the reporting of current enforcement activity, is not intended to replace those insights. To ensure that you do not miss an update, you can subscribe to our monthly financial services regulation update by clicking here. You can meet our team of financial services experts by clicking through to our financial services home page here.  

Before a firm reaches enforcement, our supervisory approach allows them the opportunity to do the right thing before we open an investigation. The factors that lead to us opening an investigation are unique. However, some of the reasons that led us to decide to use our enforcement tools in these cases include where we suspect: - Repeated failures to be open with us about our concerns. - Failing to put things right promptly, where our supervisory work has highlighted significant concerns. - Deliberately misleading the FCA, consumers or the markets. - Causing significant harm to consumers through fraud, severe disruption to services and misappropriation of assets.

https://www.fca.org.uk/publications/newsletters/enforcement-watch-1