A tough new head of enforcement, civil actions for market manipulation, and “no-win no-fee” will all help improve consumer protection, says Simon Gleeson. Simon Gleeson is head of financial regulation at Richards Butler.
Most financial services businesses say money spent on regulating themselves is com pletely wasted. However, ask them about the need to regulate their competitors and the response is generally: “No one would dream of dealing with that bunch without someone to keep them firmly in line” – evidence that financial regulation can make a positive contribution to the development of the financial markets.
Whether the FSA can supply the right regulatory product at the right price is the primary issue. Its success or failure will determine the future of the City as an international financial centre.
The two major challenges facing the FSA are the apparently antithetical aims of improving consumer protection while enhancing the standing of the City as a business-oriented regulatory environment. On both these fronts the proposals look good.
There are three components of consumer protection. First, the formal complaints procedure – possibly the least important. More important is the emphasis the regulator places upon detection of breaches of the rules by regulated firms, and the severity of the sanctions to be imposed.
In this context, two points are immediately noticeable. One is that Philip Thorpe, the former head of IMRO, has been put in charge of enforcement. The general impression among compliance officers is that IMRO had become the most aggressive of the regulators. The second is that the new regulator has asked for the decriminalisation of market manipulation, and (by implication) of insider dealing, a step which is long overdue. It will enable the FSA to bring proceedings in the civil courts, with their lower standard of proof, increasing the regulators' chances of success. It is not hard to deduce from this that the intention is to enhance significantly both the efficiency and the impact of the new unified enforcement team.
The third and most important component of consumer protection, however, is the availability of private remedies outside the aegis of the FSA. The infrastructure for this is already in place in the form of s.62 of the Financial Services Act 1986, and the advent of the no-win no-fee system lays the groundwork for the victims of financial malpractice to help themselves more vigorously than ever before.
Take the pensions mis-selling saga for example. Two or three substantial class-action suits conducted by plaintiff lawyers on a contingency fee basis would have had a more invigorating effect upon the selling companies than the pressure to which they have been subjected so far.
Whether this would have been more productive of justice may be allowed to remain an open question. However, it seems undeniable that the development of a securities plaintiff bar in the UK would be a positive development in terms of consumer rights and consumer protection.