On 19 July 2024, the Complaints Commissioner published her report about a number of linked complaints from a firm about the way that it had been treated by the FCA. Some were upheld and others not. For the purposes of this piece, the interesting aspect of the report relates to VREQs.
The FCA has in recent years made much use of VREQs. A VREQ (Voluntary Requirement) is a supervisory tool used by the FCA to have firms agree certain restrictions on their business, and they are in our experience often used as an alternative to enforcement. Although, note the recent case of CB Payments Limited, where the FCA took enforcement action following a VREQ, for failures to comply with its terms. See our article on the topic.
In its annual report published in September 2024, the FCA reported the use of 100 voluntary requirements or written undertakings by firms in 2023/2024 compared to 82 in the previous financial year. In the complaint considered by the Commissioner, she found that, following satisfaction of all the points contained in the VREQ, the FCA inappropriately failed either to notify the firm of the need to apply to lift the VREQ or for the FCA to remove it from the Register of its own volition. Instead, the firm was told there was nothing for it to do, and the firm reasonably understood that the matter was at an end. In fact, the VREQ remained on the register and the FCA later tried to rely on its existence (by extending it) when it discovered new concerns.
The Complaints Commissioner upheld the firm's complaint about the VREQ. She recommended that:
- The FCA set out a clear policy in relation to imposing, publishing and lifting VREQs, both so that there was consistency of approach across FCA teams, and so that the position is clear and transparent for firms and the public.
- Training be provided to all staff who might issue VREQs on the use of relevant terminology, as well as the process to be followed.
The FCA's response published on 15 August 2024 is brief. As regards the above recommendations, it says only that it does provide training on the use of its supervisory powers, but that it has accepted the Commissioner's recommendation to review its approach about this.
Comment
VREQs are becoming increasingly common. They can be draconian in effect and our experience is that the FCA's approach to the use of VREQs can be inconsistent. In many cases FCA supervision staff are collaborative and constructive and this approach generally achieves good outcomes. In other cases, the FCA's approach can over rigid. It is important that the FCA adopts a uniform approach to VREQs in how they are applied, in issues around publication and in how they are lifted. It is regrettable that the FCA has not chosen to use this opportunity to update its policy on use of VREQs both to increase transparency and so that firms can be clear on what to expect.