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FSA or FCA - The Multi-Pronged Attack on Financial Crime and Conduct Looks Set to Continue

As the government continues to release information relating to the financial services regulatory reform intended to take place in 2012, activity in the FSA’s Enforcement division shows no sign of relenting.

A New Enforcer

The government intends to transfer the enforcement powers of the FSA to a new body, the Financial Conduct Authority (FCA). The details of the transfer are not entirely in place yet but it is clear that the FSA does not intend to go quietly into the night where its enforcement powers are concerned.

In early June 2011 the FSA announced that data relating to suspicious trading activity before takeovers for 2010 had fallen to its lowest level since 2003. Whilst the data showed that there were still “abnormal pre-announcement price movements” before 21.2% of takeovers, this was significantly down on previous years’ figures which had remained around 30%. The FSA will be pleased with this, however it will also appreciate that whilst this is an indicator it is not an infallible sign of improvement.

Since that announcement the FSA has publicised its first conviction for boiler room fraud, a £700,000 fine for market abuse against a self-employed trader, an arrest in relation to unauthorised business, a High Court decision against land banking schemes, bans against two insurance brokers for misconduct and many other enforcement matters.

The FSA and Hard Hitting Enforcement

The regularity of the announcements is not surprising given the FSA’s highly vocal message about tough enforcement. However, the variety of criminal, civil and regulatory tools used by the FSA is an example that it is now fully familiar with the powers available to it and when to use them.

The FSA’s report into the failure of RBS, published in December 2011, postulated that one way to improve matters in future could be: “A legal sanction based approach, introducing a currently absent ‘strict liability’ of executives and Board members for the adverse consequences of poor decisions, and making it more likely that a bank failure like RBS would be followed by successful enforcement actions, including fines and bans.” It accepted that this issue “deserves extensive public debate and Parliamentary consideration”. New powers along this line would be a further draconian weapon in the FSA’s arsenal.

The transfer to the FCA may be used as an opportunity to expand powers further. The FSA announced earlier this year that managing director and Board member, Margaret Cole, will leave the organisation later this year, after nearly seven years. Ms Cole said, “It has been a challenging but rewarding few years and I believe, with the help of a team of quality people, I have created a successful enforcement platform to take into the UK’s new regulatory authorities. The time has come for me to seek a fresh challenge, knowing that I leave the continuation of a winning strategy in safe hands.”

As the markets and financial services industry continue to become increasingly multi-faceted and complex it is clear that the intention is that the new regulatory authority will seek to continue to build upon the “enforcement platform” handed to it by the FSA.

If you would like more information on this topic or an initial discussion with no obligation please call Paul Haycock on 0114 274 4275.