Are FSA reforms contrary to natural justice?
Date:17 February 2011
The Government’s plan to hand the new financial services regulator the power to publicise an investigation before it is completed is contrary to principles of natural justice and makes a nonsense of the existing statutory requirement of confidentiality, warns City law firm Reynolds Porter Chamberlain LLP (RPC).
Steven Francis, Regulatory Partner at RPC, comments on the news.
“By pre-emptively informing a firm’s clients of its investigation the new regulator could do serious damage to the firm’s reputation and business. The FSA regularly commences investigations that lead to no disciplinary outcome. The firm either satisfies the FSA there has been no wrong-doing; or the FSA simply gets it wrong.”
“The Government will therefore have to tread very carefully when implementing this power. The FSA must respect the principle of ‘innocent until proved guilty’. The mere fact of an investigation simply should not be publicised until there has been an evidence-based determination.”
“The current rules serve to protect market confidence and price sensitive information. The change proposed threatens those objectives as well as the reputation of the firm or individual concerned.”
Steven Francis explains that under the current rules, financial services businesses are forbidden to discuss any investigation that the FSA is conducting into their business.
“Financial services firms will be extremely concerned if the new regulator is empowered to tell its clients that it is investigating them but they are not allowed to explain or rebut the investigation to their clients.”
“That would create a very one sided situation which would mean that any regulatory investigation– no matter what its outcome – would be extremely damaging to the reputation and business of a financial services firm.”
Steven Francis, Partner
Reynolds Porter Chamberlain LLP
Tel: +44(0)20 3060 6230
Louis Auty or Nick Mattison
Mattison Public Relations
Tel: +44(0)20 7645 3636