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FCA doubles raids in UK crackdown

The number of dawn raids conducted by the Financial Conduct Authority (FCA) has almost doubled over the past year, from 13 in 2017 to 25 in 2018. Admittedly, 25 is not a huge number but the increase is certainly a significant one. Yet perhaps the real news lies in the reasons behind the increase in raids — and what results from them.

This increase could be seen as the FCA looking to make itself strong when it comes to cracking down on unregulated investments. The likes of boiler room operations and a variety of high-risk investment schemes are the type of activity that the FCA has to be seen to be tackling. A failure to do so — or even simply a perceived failure to do so — can be seen as weakness on the FCA’s part. So it is not particularly surprising that the FCA is now being seen to be resorting to more raids.

While 25 raids in a year is only just over two a month, it is worth bearing two things in mind. The first is that 25 is the highest annual total for the FCA since 2010, which was when the UK was having to come to terms with the severe consequences of the financial crisis. Second, the number of raids per year fell to less than ten from 2014 to 2016.

The FCA, it appears, now has either a greater appetite for raids or more need to conduct them — or both. Whatever the precise reason, we appear to be seeing an increase in enforcement activity by the FCA.

There is an argument that states when the economy and the markets are not particularly buoyant it becomes easier for the FCA — and any of its counterparts abroad — to identify investment fraud and mis-selling. But the current raid figures, I suggest, indicate more than a response to circumstances.

They do appear to be yet another sign of the FCA taking a tougher approach in the wake of major investigations such as Libor and Forex rigging being concluded. The FCA has clearly recognized that undertaking raids sends a clear message to unauthorized businesses and those who conduct unregulated investments.

There is currently an upward trend with FCA enforcement and criminal investigations. There are a number of reasons for this; including the FCA’s approach to streamlining certain investigations and processes in order to save both time and expense. Measures such as introducing partly-contested hearings and focused resolution agreements have helped in this regard.

But there is also the political pressure for the FCA to be more proactive. 

A year ago, the FCA’s own statistics showed that it was opening more cases than ever: from 100 in 2016 and 410 in 2017 to 504 by April 2018. At the same time, it was revealed that its spending had risen by 35 percent in four years and that its staff numbers had increased by almost 50 percent in the same period.

Yet questions have persisted regarding the FCA’s effectiveness. Last year’s figures for case openings and staffing levels came at a time when the FCA’s penalty levels were at their lowest for seven years — a statistic that hardly highlights an ability on the FCA’s part to “get their man.’’

If we are now in an era where the FCA is opening more cases, employing more staff, and conducting more raids, it is only logical to expect an increase in the number of penalties.

The increase in the number of raids may well indicate a stronger approach to enforcement from the FCA. But this has to be accompanied by an upturn in results. In the past, the FCA has emphasized that it will not shy away from the difficult cases. But any number of investigations opened and raids carried out will ultimately count for nothing unless the FCA succeeds in bringing to book those it has targeted. Because that is the ultimate statistic by which to judge the FCA’s effectiveness.

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Syed Rahman, pictured above, is Rahman Ravelli’s Legal Director. He focuses on civil recovery proceedings under Part 5 of the Proceeds of Crime Act (POCA). He can be contacted here.

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