The Financial Conduct Authority (FCA)’s director of investigations has urged firms to proceed with caution when conducting internal investigations into potential misconduct.
Firms may on occasion decide that a matter requires an internal investigation, and may then either conduct this investigation themselves, or delegate it to a third party. Sometimes, these investigations might be conducted following an agreement with the regulator.
Addressing a conference hosted by law firm Pinsent Masons in early November 2015, the FCA’s Jamie Symington said that his organisation could not “naively accept firms’ conclusions” when it came to internal investigations. Whilst acknowledging that internal investigations were entirely appropriate where there was little likelihood of the FCA wanting to take enforcement action, he also commented that if enforcement action was a possibility, then the issue became more “problematic”.
He added that relying on the results of internal investigations was most certainly inappropriate when there were suggestions that a criminal offence or a very serious breach of the FCA rules had been committed. In some cases, an internal investigation would be inappropriate as it could result in employees being ‘tipped off’ about the fact they are under investigation, thus denying the FCA the chance to conduct covert monitoring of the individuals concerned.
Mr Symington then told the delegates that firms need to consider whether the issue being investigated is something about which the FCA should be notified. In these circumstances, the firm must inform the regulator not just of the matter that is being investigated, but must also provide the FCA with details of the scope of the internal investigation that will be carried out. He reminded the conference that large fines have been levied in the past after firms failed to notify the FCA of important matters.
He then addressed the thorny issue of ‘legal privilege’, where firms claim that they are legally prevented from disclosing to the regulator written notes of investigatory interviews with employees. Mr Symington dismissed this defence as “absolutely absurd”, even if the interview is conducted by a legal professional, and added:
“If a regulated firm wishes to share information with us, there should be no question it should be done properly and in a transparent manner with a proper record.”
“Let me be clear: where firms propose to carry out or commission an internal investigation themselves, the starting point is that we expect them to share the core product of their investigation – i.e. the evidence– with us.”
In closing, he remarked that the FCA never “sub-contracted” its investigations to the firms, and even if it was acting on the basis of records of an internal investigation, it would always draw its own conclusions from the evidence.
So in summary, firms are certainly entitled to investigate most cases of potential internal misconduct. But they must consider whether the allegations need to be reported to the FCA immediately, must inform the FCA of the scope of their investigation, must make all records of the investigation available to the regulator, and must respect the FCA’s right to take enforcement action.
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