FSA is set to become too powerful
15 March 1999
23 July 2013
4 November 2013
29 October 2013
13 January 2014
23 August 2013
George Staple QC, partner, Clifford Chance
Monty Raphael, senior partner, Peters & Peters
Stephen Pollard, partner, Kingsley Napley
Mounting allegations in the latest City scandal - the "Flaming Ferrari" traders suspended for alleged market-rigging - will no doubt get a warm welcome from the public for encouraging plans to police the Square Mile more rigorously.
But fraud lawyers, who are always the cynics, have major reservations about the Financial Services Authority's (FSA) intended super-regulatory power to discipline the financial community.
They fear that the new powers, as framed in the Financial Services and Markets Bill, will cause confusion in the City and accusations of FSA bias.
George Staple QC, Clifford Chance partner and former director of the Serious Fraud Office, says the FSA regime to investigate, judge and pass sentence in a case of misconduct is a potentially lethal cocktail.
"It is still very unclear as to whether there's a clear demarcation between each of the functions. If these tasks are not separated, the FSA could be open to bias."
Staple says the FSA's aim to set up an impartial enforcement committee, which will decide if and how a firm should be disciplined, is a "step in the right direction".
But he adds: "The system needs the public's confidence that fundamental principles are not being infringed."
FSA proposals include the draconian measure of allowing searches without a warrant.
But Staple believes ministers will reject this. "This contravenes the European Convention on Human Rights."
The Bill gives the FSA new enforcement powers, ranging from civil fines to criminal proceedings (for certain offences). The FSA also stresses that, in investigations, answers obtained under compulsory powers will not be used in criminal proceedings.
But Staple says the latter is an area where dangers lurk. "In criminal proceedings the protection of the European Convention on Human Rights swings into action to ensure the right to a fair trial. Yet some European conventions, such as the prohibition of using compulsory statements, simply do not apply in civil cases."
Monty Raphael, senior partner at Peters & Peters, agrees. "An essential factor is that these processes must be seen to be clean and fair. The system needs to re-examine its civil powers to ensure there are built-in safeguards, in the same way that already exists with criminal proceedings."
He says the FSA "may have to build in checks and balances" to distinguish its role as investigator, prosecutor and judge effectively.
Raphael warns: "Without safeguards in place now, the FSA may end up being challenged at the European High Court years later if someone feels they have not been treated fairly."
An appeal tribunal is proposed in the Bill as part of the regulatory "safety net".
But Raphael says: "By the time it gets to that point, the person will probably be out of a job, they may have had their assets frozen, and I don't think that the Government offers legal aid in civil cases. But then it is the Government or, more specifically the Treasury, that has power over the FSA, and it is the Treasury that holds the purse strings for legal aid."
Stephen Pollard, partner in Kingsley Napley's criminal and regulatory department, says: "I think the success of the regulatory system depends on how it has been accepted by the punters, the big corporations. There is a problem with the separation of powers. People need to be reassured there is no chumminess behind the scenes between the prosecutor and the investigator."
But he concedes: "I am not a great fan of the way that the system works now."
He adds: "The amount of power the FSA has is daunting. It must make sure it is mindful of the European Convention on Human Rights."