2Normally, where the outcome is potentially a financial penalty, suspension, restriction, condition or disciplinary prohibition,3 the FCA will send a letter at an early point in the enforcement process to the subject of the investigation. This is what the FCA refers to as a stage 1 letter. The FCA will aim to give 28 days’ notice of the beginning of stage 1 to allow the parties involved to make administrative arrangements, e.g. ensuring that key staff can be available to participate where necessary in any settlement discussions. Where appropriate, the FCA will offer a preliminary without prejudice meeting to explain the FCA’s view of the misconduct (including the key factual and legal bases for our view), and to give the firm or individual an opportunity to identify where they believe there are errors in the factual basis and to indicate the extent to which they agree with the outline findings.3
[Note: stage 1 is the period from commencement of an investigation until the FCA has a sufficient understanding of the nature and gravity of the breach to make a reasonable assessment of the appropriate penalty (or suspension, restriction, condition or disciplinary prohibition, or combination thereof). The FCA ,at stage 1, also needs to have communicated that assessment to the person concerned and allowed a reasonable opportunity to reach agreement as to the amount of penalty or the length of any suspension, restriction, condition or temporary disciplinary prohibition.]3
2The settlement discount scheme3 does not apply to civil or criminal proceedings brought in the courts, or to public censures3, prohibition orders, withdrawal of authorisation or approval, limitations of the period for which any approval is to have effect,1 or the payment of compensation or redress.
2There is no set form for a stage 1 letter though it will always explain the nature of the misconduct, the FCA's view on the sanction3, and the period within which the FCA expects any settlement discussions to be concluded. In some cases, a draft statutory notice setting out the alleged rule breaches and the proposed sanction3 may form part of the letter, to convey the substance of the case team’s concerns and reasons for arriving at a particular level of sanction3. The FCA will identify the key evidence on which its case relies at the commencement of stage 1. While the FCA will identify the key evidence that underpins our outline findings, the FCA will not generally provide evidence where that evidence is already in the possession of the firm or individual.3
2The timing of the stage 1 letter will vary from case to case. Sufficient investigative work must have taken place for the FCA to be able to satisfy itself that the settlement is the right regulatory outcome. In many cases, the FCA can send out the stage 1 letter substantially before the person concerned is provided with the FCA's preliminary investigation report (see paragraphs 4.13.1 to 4.13.4). The latest point the FCA will send a stage 1 letter is when the person is provided with the preliminary investigation report.
2The FCA considers that 28 days following a stage 1 letter will normally be the ‘reasonable opportunity to reach agreement as to the amount of penalty’ before the expiry of stage 1 contemplated by DEPP 6.7.3G3. Extensions to this period will be granted in exceptional circumstances only, and factors that will be taken into account in considering an application will include the extent to which factors outside the firm’s or individual’s control will have a material impact on their ability to engage in settlement negotiations within the period set out in the stage 1 letter3.