Cloudless day at financial district of London

The regulators have said they will not pursue their proposals on announcing enforcement investigations and on D&I.

By Rob Moulton, Nicola Higgs, Becky Critchley, Anna James, and Charlotte Collins

On 12 March 2025, the FCA and PRA made important announcements regarding the long-awaited outcomes on certain key policy proposals. The FCA published a letter addressed to the Treasury Select Committee and accompanying statement, while the PRA also published a letter to the Treasury Select Committee.

Announcing Enforcement Investigations

The FCA confirms that, given the lack of consensus around these controversial proposals (see this Latham blog post on the original proposals, and this post on the revised proposals), it will not be taking forward the main proposal to introduce a public interest test for announcing enforcement investigations. Instead, it will continue to use its existing “exceptional circumstances” test to determine if it should publicise investigations. Many had argued that the FCA’s existing powers to announce investigations gave it sufficient leeway to announce the sorts of cases it would be seeking to publicise under its proposals.

Although the FCA had remained persistent by revising the proposals to address some of the initial criticisms in November 2024, the recent report by the Financial Services Regulation Committee (subtly titled “Naming and shaming: how not to regulate”) made the FCA’s position effectively untenable. However, the FCA indicates that it will take forward certain aspects of the proposals that received broad support:

  • Reactively confirming investigations that are officially announced by firms or other regulators
  • Making public announcements in relation to the potentially unlawful activities of unregulated firms, and regulated firms operating outside the regulatory perimeter
  • Publishing greater detail of issues under investigation anonymously, perhaps, as respondents to the consultations suggested, via a new regular “Enforcement Watch” bulletin

The FCA plans to publish a formal Policy Statement by the end of June 2025 (not in Q1 2025, as previously stated). Respondents to the consultations had suggested that the FCA ought to focus its efforts on improving timescales for investigations, rather than using time and resource revising its approach to announcements. Lengthy average investigation times were one reason respondents were so concerned about the FCA’s proposals, as it could mean a long time before firms under investigation could clear their name if the investigation was announced at the outset. Consequently, in its letter the FCA also emphasises the efforts it has made to improve its enforcement work. The regulator states that it has increased its pace and focus, with several recent investigations taking less than 16 months to reach fruition. It has also reduced the number of open investigations by 35% since 1 April 2023, and no investigation opened since this date has closed without further action.

Diversity and Inclusion (D&I) Proposals

The FCA and PRA initially consulted in September 2023 on introducing new reporting and disclosure requirements on D&I for larger firms, and a requirement to set a D&I strategy and specific targets (see this Latham Client Alert). This consultation stalled as a result of the House of Commons Treasury Committee’s Sexism in the City inquiry, which raised concerns about collecting and reporting on data and the need to set targets. The regulators indicated that they would not be prioritising these proposals, and have now confirmed that they will not be taking them forward.

This does not mean that the regulators are necessarily deprioritising D&I; rather they both note “there is a very active policy and legislative agenda, including on employment rights, gender action plans and disability and ethnicity pay gap reporting. Many of those who responded to our consultation wanted us to align our regulatory approach with such initiatives, to avoid duplication and unnecessary costs”. Consequently, it fits better with the government’s mandate for the regulators to reduce regulatory burdens on firms if the regulators do not add more requirements in this area. There may still be a desire to introduce regulatory rules on D&I in future, but the regulators will not consider this again until new legislation and other initiatives have had time to bed in.

Non-Financial Misconduct

Alongside its D&I proposals, the FCA consulted on new guidance on non-financial misconduct to help firms navigate this difficult area. While the regulators deprioritised their D&I proposals, they had indicated that they would be moving forward with this guidance, and so the finalised guidance has been expected for some time. The FCA indicates in its letter that, in light of changes to the legislative landscape, it is “taking some further time to get this right and will set out next steps by the end of June this year”.

Given how often the publication of the final guidance has been delayed, it is possible that there remains controversy (perhaps within the FCA, or between it and the government) on how much, and what sort of, guidance to give to senior managers.