FCA consultation CP21/25: a new approach to decision making

In its recently published Consultation Paper 21/25, the Financial Conduct Authority (FCA) has suggested a number of changes to its decision-making processes, including the independent Regulatory Decisions Committee of the FCA (‘RDC’) no longer being responsible for a range of important supervisory decisions.

In this article, financial services and banking specialist Tony Watts explains the possibility of these changes and the ramification they could have on FCA proceedings.

What is the RDC?

In a wide range of issues, a person or entity affected by a decision of the FCA has a right to have their matter considered by the RDC.

The RDC is part of the FCA but functions independently from it. Decisions are made by three members of the RDC who are not employed by the FCA. It has its own secretariat and legal advisers. It deals with the persons affected by an FCA decision (for example, a firm whose regulatory permissions may be cancelled) and the team presenting the FCA’s case on an equal arm’s-length basis.

This means, for example, that all correspondence with the RDC must be shared between the person challenging the FCA decision and the relevant FCA team. The RDC makes the decision as to whether the FCA can take certain actions, in particular issuing statutory notices (warning notices or supervisory notices which start regulatory proceedings), considering representations from both parties and making the regulatory decision (for example, to impose a penalty or withdraw a regulatory permission).

What does CP 21/25 propose?

The Consultation Paper proposes that in some cases, issuing relevant notices and making the regulatory decisions will be made under Executive procedures and not by the RDC.

This means that those making the decision (or issuing the notice) will be senior members of the supervisory team that is proposing the action, not a separate part of the FCA (though to some extent different individuals will be involved).

The RDC would remain the decision maker for disciplinary proceedings (for example, imposing a financial penalty). The RDC would, however, no longer be involved in certain supervisory decisions – broadly those including decisions to bring civil and criminal proceedings, refusals of FCA authorisation and/or cancellation of regulatory permissions.

If implemented, the changes would also involve removing some of the other safeguards which exist where the RDC is the decision maker. For instance, there would be no right to see correspondence between the relevant FCA team and the Executive (as there presently is with the RDC). The relevant decision would be made by two (not three) Executive members. There will be no right to make oral representations except in exceptional cases; only written representations would be allowed.

It does seem sensible to remove the RDC from decisions to bring civil and criminal proceedings in the courts. These will obviously be considered by a court in any event.

However, the impact of the other changes could be more controversial. In particular:

• The process may be seen as lacking objectivity and fairness as it removes a key independent scrutinising procedure.
• Crucially, the distinction between supervisory and disciplinary proceedings is not always a clear one. Cancelling a regulatory permission to carry on an activity may have dire consequences for a business, in the same way as a disciplinary sanction might have. It may also affect the reputation of individuals and their ability to earn a living within financial services.
• The proposals are intended to make FCA decision making quicker and more efficient. This would be welcome, but it is not clear what extent FCA decision making has been slowed down by the need to involve the RDC. Even without these changes, the FCA can still act very quickly where an action is uncontested. It can also order that an action have immediate effect in some cases.
• The changes suggested by the FCA assume a clear distinction between ‘straightforward’ and ‘non-straightforward’ cases involving the cancellation regulatory permissions. Not all practitioners or firms would agree with what the FCA would regard as ‘straightforward’. The FCA mention cases involving the Threshold Conditions, but many such cases will be far from straightforward (for example, those challenging the business model of a firm).
• There will still be a right to refer FCA decisions to the Upper Tribunal. The Upper Tribunal functions much more like a court and so legal representation is likely to be necessary. Even at present it cannot hear cases quickly – and this is likely to get worse if there is further pressure on it.

The Consultation Paper closed for responses on 17 September 2021.

The changes are controversial and may be seen by many as unfair. In practice, the involvement of the RDC (while not being a court) is seen as providing some safeguards of independence and objectivity – reassuring those affected by regulatory decisions that they have at least had a fair hearing. The FCA already has the tools to act quickly in urgent or uncontested cases.