Flash SMCR+ View - NFM, D&I and Enforcement Proposals

When it rains, it pours … the FCA has today announced updates in relation to three of its highly anticipated proposals – the headlines are that:

• the FCA’s NFM final rules are delayed, the FCA publication of their ‘next steps’ is expected by the end of June this year,
• the FCA and PRA will not be taking forward their proposals on D&I, and
• the final policy on the FCA’s approach to transparency of enforcement investigations will be published by the end of June this year and will not include a proposal to proactively name firms under investigation using a new public interest test.

This series of updates clearly indicates that the FCA is taking on board the government’s instructions regarding UK competitiveness and proportionate regulation. We’ve included further details on each of these below.

Non-Financial Misconduct Final Rules: It may not come as a surprise to you that the publication of the Final Rules on NFM has been delayed yet again, with the FCA indicating that it will “set out next steps” by the end of June this year. The delay is down to the FCA taking further time to “get this right”, as well as ensuring the approach is proportionate and aligned with planned legislation. The reference to “next steps” as opposed to “final rules” caught our eye – we’ll wait to see what the FCA publish.

Diversity & Inclusion update: Following the pushback from the industry and engagement with the Treasury Select Committee on the proposals in relation to D&I, the FCA and PRA have confirmed that they have no plans to take the proposals any further. The FCA indicate that this is because of the feedback received, together with “expected legislative developments” and to avoid imposing additional burdens on firms.

In relation to “expected legislative developments”, this may be referring to the Government’s announcement that it will introduce an Equality (Race and Disability) Bill to impose mandatory ethnicity and disability pay gap reporting for large employers and extend the right to make equal pay claims to ethnic minority and disabled people. A draft bill is anticipated in Spring 2025 and will then be subject to parliamentary scrutiny - so we’re unlikely to see any changes come into effect before 2026.

Enforcement Transparency proposals: The FCA has published a letter to the Treasury Select Committee, which, in addition to detailing the “significant” improvements the FCA has made in terms of the pace of its investigations, outlines the next steps on its approach to transparency of enforcement investigations, confirming that:

• The FCA will not take forward its proposal to shift from an exceptional circumstances test to a public interest test for proactively announcing investigations into regulated firms, given the considerable concerns it received in relation to this proposal. We feel confident in saying that this will come as a relief to the industry
• The FCA will take forward proposals in relation to: (i) reactively confirming investigations already in the public domain, (ii) issuing public notifications which focus on the potentially unlawful activities of firms operating outside the regulatory perimeter, and (iii) publishing greater detail of issues under investigation on an anonymous basis (i.e. an Enforcement Watch or similar publication).
• The final policy will be published by the end of June this year.

If you have any questions on the updates or would like to discuss the support we can offer your team, please contact Penny Miller (Partner) or Amy Sumaria (Managing Associate).