But acting in bad faith effectively means acting maliciously, says Morris at CMS, and it would be very difficult to show this.
“It's a very, very high standard to show. What is more likely is that if the FCA threatened to publish and the firm was sufficiently aggrieved, it could seek to injunct the FCA.
“But that would be a very strident step for a firm to take, and I think very few firms would be willing to do that.”
The FCA’s statutory immunity in respect of paying damages will be a significant obstacle for firms seeking to take action after they have been publicly named, agrees Adam Jamieson, partner at Ashurst.
“Firms are more likely to focus on successfully challenging the FCA at the pre-publication stage, before any reputational damage or financial loss has been suffered.”
If the FCA decides to announce, or publish an update on, an investigation that names the subject, the regulator will give the subject “appropriate advance notice”.
“The FCA will usually give no more than one business day’s notice but may give no notice if it considers that the circumstances require urgency,” the consultation paper reads.
If the FCA goes ahead with these proposals, it should include a specific mechanism for challenge prior to publication, says Makin at Wilmer Hale. “This is especially important given that the proposed public interest test for early publication does not include any consideration of the potential damage or harm to the investigation subject.”
Although the FCA is exempt from liability to pay damages under legislation, there is a scheme for handling complaints against the regulators.
A policy statement says the scheme acts as a counterbalance to its statutory immunity, but is not intended to undermine it.
“That may arguably be an acceptable state of affairs at present,” says Ellis. “But it may need to be reviewed if the FCA acquires greater ability to inflict damage on firms.”
While there has been much comment on reputational damage to firms, Ellis adds that there could also be damage to the FCA in the long run.
“The proposal will come with a risk that the FCA will identify firms as being subject to investigation and will then, in some cases, have to publish a follow-up statement saying that the relevant investigation was to be closed with no action taken.
“If this were to happen even on a semi-regular basis, the FCA could end up damaging its own reputation.”
Is a U-turn possible?
The proposal to disclose the identities of subjects of investigations is open to consultation until April.
