By Huw Jones and Kirstin Ridley
LONDON (Reuters) -Britain's financial watchdog conceded on Wednesday it had been surprised by the "stern reaction" from the industry about its proposals to "name and shame" companies under investigation, but brushed aside a finance ministry call to ditch the initiative.
Grilled by the cross-party parliamentary Treasury Committee, the Financial Conduct Authority's (FCA) CEO Nikhil Rathi said it would take several months to consider a backlash, in which the regulator has been accused of sidelining a new duty to promote the industry's international competitiveness.
"It is ... really clear there is no presumption to disclose or name (companies)," FCA Chair Ashley Alder told the committee. "As we develop this, discuss it, take on board the feedback, we will start thinking about what criteria will be applied."
Alder and Rathi said that on "deep analysis" such disclosures were not inconsistent with ensuring competitiveness, emphasising that any such policies would be in the public interest and could be applied in a "factual and measured" way.
The FCA unveiled plans in February to publicly disclose some corporate investigations earlier to deter wrongdoing, encourage whistleblowing and witnesses and reassure the public that it was "on the case". At present, the regulator typically gives details of an investigation after it has been resolved.
But the plans sparked a fierce backlash from lawmakers, industry bodies and lawyers, who argued that naming companies under investigation before assessing all evidence risked "gross unfairness" and harming London's international standing.
"In terms of the reaction, in truth, we weren't ... expecting such a stern reaction," Alder said.
Earlier on Wednesday, Britain's financial services minister Bim Afolami also criticised the proposal, along with plans by the FCA to require additional reporting requirements on firms to improve diversity among employees.
The FCA, which is independent of government but accountable to parliament, has a new, secondary remit to aid the financial sector's global competitiveness. But critics, including the finance ministry, say the "naming and shaming" proposals appear at odds with this and risk deterring international investment.
"The signal to international investors, and to people in this country, is that the regulator still doesn't get it," Afolami told a Financial Times event.
"When they say they don't have resources sometimes to deal with things, I say stop focusing on things that are non core like naming and shaming or this diversity consultation, and focus on conduct and making sure the system works properly for consumers and producers," Afolami said.
Afolami has said regulators need to accept a greater level of risk in the system to allow for innovation, but progress on this has been "mixed".
Some other British regulators name companies under investigation, but the practice is rare overseas.