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22 February 2012

FSA restructuring – what implications for financial crime prosecutions?

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On 15 February 2012, the Financial Services Authority (FSA) announced that the managing director of its conduct business unit, Margaret Cole, will leave the financial regulator at the end of March.  Her exit follows a number of departures of senior staff from the FSA as the coalition government continues to implement its policy to restructure the way in which the financial industry in the UK is regulated.  So what is the shape of things to come?

The government plans to carve up those functions currently performed by the FSA and to introduce a new “twin-peaks” model with separate bodies responsible for prudential regulation and conduct regulation.

A newly created Financial Policy Committee (FPC) will operate within the Bank of England while the Prudential Regulation Authority (PRA), a subsidiary of the Bank of England and an independent Financial Conduct Authority (FCA) will replace the existing FSA.

The FPC will be handed responsibility for protecting the stability of the financial system as a whole and the PRA will be responsible for prudential supervision of deposit takers, insurers and a small number of significant investment firms.  The FCA will be responsible for regulating retail and wholesale markets and for the prudential regulation of firms not prudentially regulated by the PRA, which is likely to include firms such as insurance brokers and mortgage brokers.

The Financial Services Bill, which will implement the proposed changes to the financial regulatory structure, was introduced to Parliament on 26 January 2012.  The Bill amends the Financial Services and Markets Act 2000 (FSMA) so that the FCA will assume the FSA’s statutory remit to prosecute offences of insider dealing and misleading the market.  The Bill, in its current form, does not therefore appear to alter the statutory powers available to the FCA to effectively prosecute instances of financial crime.  It is likely that the FCA will, as the FSA has done, rely upon the decision of the Supreme Court in R v Rollins to seek to prosecute money laundering offences and conspiracies which relate to FSMA and insider dealing activity.

During Margaret Cole’s seven years at the FSA, the regulator secured its first criminal conviction for insider dealing against Christopher McQuoid and James Melbourne in 2009.  She is regarded as having been pivotal in transforming the FSA’s approach to enforcement.  Last year her department secured 11 convictions for insider dealing and levied a total of £66m in fines.  A further 16 individuals are currently awaiting trial.

The government proposals are intended to reform what is perceived to be a failed system of financial services regulation which the government believes contributed to the financial crisis.  The powers available to the emerging regulators to prosecute financial crime are not likely to differ significantly from those currently available to the FSA.  However, we shall have to wait to see how the proposed restructuring of the regulator and the departure of individuals such as Margaret Cole will impact specifically upon the progress the FSA has already made in establishing the policies and tools necessary to operate as an effective prosecutor of financial crime.

Corker Binning is a law firm specialising in fraud, business crime and general criminal work of all types. For more information about our expertise in insider dealing and market abuse cases, visit our FSA enforcement and investigation page or call us on 0207 353 6000.

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