The Financial Conduct Authority (FCA) is the conduct regulator for all financial services companies in the UK. It is also the prudential regulator for over fifty-thousand financial services companies and a criminal enforcement agency.
The FCA as a criminal enforcement agency
The FCA’s criminal enforcement powers derive largely from the Financial Services & Market Act 2000 (‘FSMA’) and in particular s168 which sets out the circumstances in which investigators can be appointed to investigate:
- breach of the general prohibition (s19 FSMA – conducting regulated financial services without authorisation);
- misleading investors (s89 Financial Services Act 2012);
- misleading the market (s90 Financial Services Act 2012);
- breach of the money laundering regulations(Money Laundering Regulations 2017); and
- insider-dealing (s52 Criminal Justice Act 1993).
The FCA can, as a private prosecutor, investigate any other criminal offence but when exercising its information-gathering powers it can only do so in relation to the offences set out in s168.
The recent appearance of Konstantin Vishnyak at Westminster Magistrates’ Court on 6th September 2019 provides a useful window into the present mind-set of the FCA, in its role as a criminal enforcement agency and its approach to criminal investigations.
Mr Vishnyak has pleaded not guilty to an offence contrary to s177 (3) (a) FSMA 2000:
(3)A person who knows or suspects that an investigation is being or is likely to be conducted under this Part is guilty of an offence if—
(a)he falsifies, conceals, destroys or otherwise disposes of a document which he knows or suspects is or would be relevant to such an investigation
In this particular instance the FCA allege he ‘…deleted the WhatsApp application on his mobile phone after he was required to provide it as part of the investigation [into suspected insider dealing]’.
As the FCA press release makes clear ‘No assumption should be made at this stage that a criminal offence has been committed’ by Mr Vishnyak.
But the offence to which he has pleaded not guilty, is instructive of two things. In the first instance it is a useful reminder of the unique evidence gathering powers that the FCA has at its disposal and in the second it demonstrates that the FCA is exercising more of it is prosecutorial muscle.
The unique FCA evidence gathering power
The requirement to provide information derives from s173 FSMA:
173 Powers of persons appointed as a result of section 168(2).
(1)Subsections (2) to (4) apply if an investigator considers that any person (“A”) is or may be able to give information which is or may be relevant to the investigation.
(2)The investigator may require A—
(a)to attend before him at a specified time and place and answer questions; or
(b)otherwise to provide such information as he may require for the purposes of the investigation.
(3)The investigator may also require A to produce at a specified time and place any specified documents or documents of a specified description which appear to the investigator to relate to any matter relevant to the
(4)The investigator may also otherwise require A to give him all assistance in connection with the investigation which A is reasonably able to give.
(5)“Investigator” means a person appointed under subsection (3) of section 168 (as a result of subsection (2) of that section).
In essence s173 FSMA means that if the FCA appoints investigators to investigate an offence mentioned in s168 FSMA the subject of that investigation can be required to provide information to assist the investigation.
Whilst it would be wrong to describe the requirement power (sometime referred to as a compellable power) as draconian, and it is noticeable that there is no subsection allowing the FCA to seize information if a subject refuses to comply with the service of a s173 FSMA request, the existence of the s177 (3) offence, criminalising active attempts to conceal or destroy the required information, means s173 FSMA has real bite.
The limited reach of FCA power to seize
Given that in relation to individuals, the FCA has no evidence gathering powers analogous to those available to the Police, such as the power to seize items from individuals incident to arrest (s19 & s32 PACE 1984), the ability to serve a s173 FSMA requirement on an individual is exceptionally useful.
Whilst s176 FSMA gives the FCA the ability to have other law enforcement agencies execute criminal search warrants at specified premises on their behalf, in today’s high tech world the information/evidence sought is much more likely to be on an electronic device within the custody and control of an individual than on sheets of paper in a locked filing cabinet.
s173’s broader application
It is worth pointing out that the text of s173 FSMA refers to ‘…any person…’ and thus an individual who is not the subject of an investigation could be caught by the ambit of the s177 (3) FSMA offence if they failed to comply with a s173 FSMA request.
Flexing of prosecutorial muscle?
In a recent Treasury Select Committee appearance, Andrew Bailey, the FCA’s CEO, was keen to point out the significant increase in enforcement investigations during his tenure as evidence of a more aggressive approach to enforcement. Those in the financial services sector might raise an eyebrow at Mr Bailey’s assertion that opening investigations is proof positive that the FCA is the financial services enforcer the sector needs given the relative paucity of criminal prosecutions brought to court in the past two years.
But given the complexity of the conduct that falls with the FCA’s ambit, covering individuals running boiler rooms selling regulated financial products without authorisation to international banks on-boarding customers without the requisite know your customer (‘KYC’) due diligence to satisfy anti-money laundering rules and its resourcing constraints (unlike the DoJ the FCA does not have an enforcement budget that runs into hundreds of millions of pounds) the present lack of output should not be interpreted as lack of will to prosecute. Indeed the willingness of the FCA to prosecute an individual for an offence that some commentators would characterise as more akin to regulatory non-compliance signals that the FCA is now prepared to use all the tools at its disposal in the fight against Financial Crime. The outcome of the prosecution of Mr Vishnyak is worth following.