Press reports suggest that Paul Watson, the head of regulatory compliance for the Global Banking and Markets division of HSBC, is under investigation by the UK's Financial Conduct Authority, but HSBC is neither confirming nor denying it.

Sky News claims that the investigation is not to do with personal misconduct but centres instead on Mr Watson's efforts to discharge his duties. He is reportedly still working normally.

Sky believes that Mr Watson fell under regulatory scrutiny when a "skilled person's inquiry," no doubt ordered by the regulator under s166 Financial Services and Markets Act 2000, threw up evidence of faulty systems and controls at HSBC. The FCA does not comment on unresolved investigations that are specific to firms.

When asked about the affair, an HSBC spokesman told Compliance Matters: "We are not commenting on the FCA investigation. What I can point you to are a couple of comments from current/ex FCA officials talking about the FCA’s new(ish) approach to investigations."

These comments are worthy of repetition as they represent one way of allaying controversy. The first comes from September last year, when FCA enforcement chief Mark Steward said: "The function of an investigation is essentially diagnostic, to enable us to understand, when serious misconduct may be in issue, what has really happened and what we need to do about it. It is a fundamentally different process to litigation where we have a view about what has happened. When we are investigating, we have not concluded any view about what has happened. Importantly, while all litigation we conduct should be premised on a proper investigation of the evidence, an investigation does not mean litigation is inevitable. While there is little doubt that ‘prospects of success’ is an important element in considering whether enforcement resources should be deployed, I think it must be right that the merits of a case cannot be assessed before you have the relevant evidence, or even the key evidence. This is a real horse-before-cart issue."

Secondly, in June 2017, Jamie Symington (at the time the FCA's director of investigations, now a partner at the law firm of Brown Rudnick) said the following: "I want to be clear that the FCA does not use investigations only as a precursor to contemplated enforcement action when something has gone wrong. But rather, investigation is a tool for finding out what has happened. What we then do in response to a matter is to be decided only once we have sufficient information to inform that decision.”

"The use of investigations should be seen as one of the options available to the FCA in the diagnostic phase of regulation. Our investigation powers provide us with the ability to uncover the facts and issues."

"It is inevitable that the implementation of this approach will lead to more investigations being opened. There are two important consequences of this. First is that there must be rigour in ensuring that our resources are deployed most efficiently and effectively in progressing investigations to the point where we can decide what the regulatory response should be...Secondly, there needs to be a recognition that it is likely that proportionately fewer of our investigations will progress to disciplinary enforcement action.”

"The key point is that a matter is not passed to Enforcement only so that Enforcement can do its best to bring an enforcement case. An investigation is opened because we want to understand what happened."