13 April 2016 - Post by:Sarah Hitchins
The past couple of years have seen a noticeable shift in the UK Financial Conduct Authority’s (FCA) expectations of – and reactions to – firms’ internal investigations. Notably, the FCA is showing greater willingness to scrutinise firms’ internal investigations (both their methodology and conclusions) as part of enforcement investigations. As a result, many firms are (quite rightly) re-thinking their existing approaches to internal investigations.
We will be producing a series of blog posts, tackling the challenging issues relating to internal investigations (see below for further details).
The FCA’s focus on firms’ internal investigations was reinforced by a speech given by Jamie Symington (a Director in the FCA’s Enforcement Division) at the end of last year. His speech was entirely dedicated to internal investigations and set out some clear messages for firms undertaking their own investigations.
These messages (set out below) are of particular significance to those firms conducting internal investigations where it is possible that the FCA may show an interest in the underlying issue(s). Likewise, the sentiments expressed by Mr Symington in his speech are not exclusive to the FCA. Other regulators and authorities have been making similar noises. For example, the US Department of Justice in the form of the Yates Memo (see here and here) and recent comments about the UK Serious Fraud Office’s expectations when it comes to co-operation (see here and here).
Over the next year, internal investigations may also become more common due to the fact that the majority of the workforce are or will become subject to the new FCA and PRA Conduct Rules.
#1: Engagement with the FCA
Self-reporting issues to the FCA is the ‘bare minimum’ expected of firms; ‘defensive reporting’ will not be tolerated; and early engagement with the FCA at the outset of an internal investigation is a must. These were the key messages touted by Mr Symington when it comes to engaging with the FCA.
The FCA is alive to the risk that their reliance on the output of firms’ internal investigations may be characterised as allowing firms to ‘mark their own homework’. However, on the subject of independence, the FCA did flag that an ‘important factor’ it considers when deciding whether it is ‘satisfied that a firm’s investigation has an adequate degree of independence’ is the people who have conducted the investigation. In this context, he flagged the role to be played by external lawyers in appropriate cases.
Mr Symington described transparency in relation to firms’ internal investigations as ‘the key’ and the ‘one core value I would stress and encourage above all’. But what did Mr Symington mean by transparency and what was he referring to in particular?
In his speech, Mr Symington noted that the FCA does not usually encounter difficulties with regards to firms sharing historic evidence gathered in the course of an investigation. Client files and trade data were two examples he provided. However, it appears that Mr Symington’s comments about transparency were aimed more so at transparency regarding documents produced during an internal investigation. It seems that internal interview attendance notes were his primary target on this front. Although Mr Symington stated that the FCA ‘fully understand[s] and respect[s] the needs and the rights to firms to claim and protect their rights to legal privilege where appropriate’ he warned that firms should not allow ‘legal privilege to become an unnecessary barrier to sharing the output [of an internal investigation] with the FCA’. Mr Symington also described the practice of reading aloud the output from internal investigations to the FCA in meetings as opposed to providing this information in writing as ‘an absurd way to suggest that a public authority should operate’.
Are the days of internal investigations over?
No. The underlying theme running throughout Mr Symington’s speech is that, if done well, internal investigations can be hugely useful exercises – both for firms and regulators. But what doing an investigation ‘well’ actually means in practice may vary depending on whether you look at it from a firm’s perspective, or a regulator’s perspective. At times it will be difficult to reconcile these two standpoints and firms may need to take tricky decisions, which may not always sit well with the FCA and other regulators.
Future blog posts: Challenging issues in internal investigations
Over the next few weeks, we will be publishing a series of blog posts on internal investigations. These blog posts will seek to draw out and give practical guidance on the more challenging and tricky issues that can often arise in internal investigations. Topics we propose to cover include scoping, internal and external communications, employment issues, interviews and drafting investigation reports.
If any readers have suggestions for topics that they would like for us to cover in this series of blog posts, please do not hesitate to get in touch via firstname.lastname@example.org.