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More Robust Approach To FSA Enforcement & Financial Crime

Financial Services Authority publishes its Business Plan setting out its priorities for 2010/11


The FSA has indicated in its new Business Plan for 2010/11 that there will be significant investment in their enforcement activities to support a more 'credible deterrence' approach.  The budget increase of £12m (from £53.9m to £66.1m – a 22% change) in the Enforcement & Financial Crime Division reflects the FSA's continued investment in combating financial fraud and market abuse.

The focus of FSA Enforcement action has shifted to taking a harsher stance.  The FSA state they are strongly committed to continuing to ensure the momentum they have generated is maintained in 2010/11 with their focus remaining on firms and individuals. In support of their market confidence objective they have a pipeline of significant cases.  In the first half of the year, three insider dealing prosecutions are due to be heard and charges in other cases anticipated. The FSA state they will also use criminal prosecution where appropriate to reinforce the change in control regime.

In the area of consumer protection, the FSA will continue to use enforcement to achieve significant penalties that they believe will change behaviour and obtain the right outcomes for consumers.

2010/11 will also see the implementation of the FSA's new penalties policy, which will not only provide greater transparency but also increase the level of penalties that the FSA impose on market participants, more directly correlated to revenue.

The FSA state that it is critical that they maintain focus on reducing financial crime.  The Business Plan provides as follows in relation to insider dealing and market abuse:

"In respect to our objective of maintaining market confidence, market abuse and particularly insider dealing are two key areas that we will continue to address throughout 2010/11. This work is driven by the ongoing delivery of our credible deterrence philosophy, which will see us continue to aggressively pursue criminal prosecutions alongside civil action. Market participants who commit or are involved with insider dealing or other market misconduct must be aware that we will take tough action and hold them accountable for their behaviour.

"The focus of our enforcement action has shifted to take a harsher stance on insider dealing offenders. In 2009 we secured guilty verdicts and custodial sentences in our first two criminal insider dealing prosecutions.  We are strongly committed to delivering similar results in 2010/11 and we already have three insider dealing trials (involving five defendants) scheduled to take place in the first half of 2010.

"In support of this we will continue with the implementation of our new penalties policy, published on 1 March 2010. As a core part of our credible deterrence philosophy the policy brings into effect a new methodology for imposing penalties on those who breach our rules. Not only does this change provide more transparency and consistency, it increases the level of penalties that we can impose on market participants who engage in abusive activities."

Alongside enforcement action, we remain committed to undertaking a programme of thematic work to review anti-market abuse systems and controls in certain key areas with a view to publishing good practice points and championing industry improvements. Our focus in 2010 will include further work in relation to controls to keep information relating to public takeovers confidential, discussions on the controls over pre-soundings and the way in which stock-lending is used by firms."

More information on the FSA's new Business Plan can be found at this link:  http://www.fsa.gov.uk/pubs/plan/pb2010_11.pdf

Sarah Wallace, FSA investigations defence lawyer at Irwin Mitchell commented, "the FSA Enforcement & Financial Crime Division will almost certainly focus on recruiting specialist criminal litigators from private and public practice to expand their current criminal investigation and prosecution team.  Whilst the current policy is to focus on the prosecution of 'FSMA offences', it may be that in time, the FSA will look to prosecute fraud and financial crime more widely."

If you or your firm have any questions regarding the issues raised in the article regarding FSA Enforcement and Financial Crime investigations, market abuse or penalties, please contact Sarah Wallace on 0370 1500 100 or 020 7421 3883.