Factors we consider when deciding to open an investigation, including how we detect and assess serious misconduct.
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We aim to address harm by using our statutory powers to investigate and, where appropriate, take civil, criminal and disciplinary action where there has been a contravention.
During an investigation, we aim to find out whether serious misconduct has occurred and get a full understanding of the facts so we can decide whether to act and, if so, what kind of action may be necessary.
The opening of an investigation doesn’t mean we believe misconduct has occurred or that anyone involved in the investigation is necessarily guilty of misconduct.
More detailed information about our approach to enforcement is set out in our Approach to Enforcement document and Enforcement Guide.
When we start an investigation
Not all breaches of our rules and requirements constitute serious misconduct. They may be addressed using other tools available to us without the need for enforcement action.
We will start an investigation where we have reason to believe serious misconduct may have taken place. This means that we may investigate at an early stage, before harm occurs.
A flowchart showing the process of a typical enforcement case can be found in the Enforcement Information Guide.
How we detect serious misconduct
We detect potential serious misconduct through work carried out by our Market Oversight, Supervision, Authorisation and Competition Divisions, and our Financial Crime, Intelligence and Whistleblowing teams.
We also collaborate with other regulators and law enforcement agencies, both in the UK and overseas.
There are two different vetting teams (one in Retail and one in Wholesale) that manage relationships with Enforcement and sit within the Enforcement and Market Oversight Division. These teams prioritise enforcement matters from stakeholders across the FCA. They consider and escalate potential matters for investigation decisions to the relevant decision makers.
We use our experience and judgment to identify serious misconduct quickly, to reduce the impact on consumers, markets and firms. As a result, we may open an investigation before any harm occurs.
How we assess serious misconduct
Not all harm is caused by serious misconduct. However, serious misconduct is likely to cause harm to market integrity, confidence in the financial system or cause harm to consumers.
It may not be harm that affects the whole industry, it can be harm that has serious ramifications for a small part of the market or a small number of consumers.
Examples of serious misconduct that could cause harm are:
- misconduct resulting from a lack of integrity
- serious failings in a firm’s systems and controls including governance and senior manager failings
- mis-selling of unsuitable products to consumers
In determining whether serious misconduct may have occurred or may occur, we use our experience and judgement to assess a range of factors. These may include:
- the nature and severity of the actual and potential harm arising from the suspected misconduct. This could include the extent to which the suspected misconduct has or may affect consumers, markets or firms if we do not take action
- whether the suspected misconduct has potentially wider or broader implications, and in particular whether vulnerable customers appear to have been exploited. A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care
- the extent to which the suspected misconduct may have involved any lack of fitness or propriety
- the public interest in investigating the matter
The statutory test
Under the Financial Services and Markets Act 2000 (FSMA), we may open specific investigations if there are circumstances suggesting that a firm or individual may have breached one or more of our rules or principles, or may be guilty of certain offences.
If the circumstances don’t suggest any specific breach or contravention, but we have good reason to be concerned about a firm, we may open a general investigation into the business, ownership or control of that firm.
Addressing harm
Firms and individuals should not wait for an investigation to end, or for us to impose a sanction, before acting in a way they think is right. This includes taking proactive steps to put right any harm or damage that may have been caused to consumers.
This doesn’t mean that if a firm or individual has taken remedial action we won’t investigate or take enforcement action where serious misconduct appears to have occurred. We need to make sure there is full accountability for serious misconduct.
However, when we decide on the appropriate sanction, we will acknowledge and give appropriate credit to wrongdoers who quickly address wrongdoing.