Jonathan Fisher QC, barrister, 23 Essex Street
Opinion: FSA: leave insider dealing prosecutions to the SFO
12 October 2009
7 June 2013
11 September 2013
23 July 2013
16 August 2013
Regulatory risk: new SFO Director signals changes in how the agency will treat companies in the future
8 March 2013
It is astonishing that the Financial Services Authority (FSA) has been able to transform itself from benign regulator to assertive criminal prosecutor in the absence of public debate about its accountability.
Although the FSA is answerable to Treasury ministers and Parliament, line management for the conduct of prosecutions is less than satisfactory - other public prosecutors are subject to ‘superintendence’ by the Attorney General, but the FSA is not. Superintendence has never been defined judicially, but former Attorney General Lord Goldsmith made it clear that it involves setting the strategy for the prosecuting authority, taking responsibility for its overall policies, and the right to be consulted about difficult, sensitive and high-profile cases.
The explanation for the FSA’s lack of line management lies in the fact that, in addition to offences under the Financial Services and Markets Act 2000, the FSA was afforded the ability to prosecute insider dealing offences and breaches of the money laundering regulations as an ancillary weapon in support of its broader regulatory functions. Throughout its existence the FSA has asserted that it is empowered to prosecute any criminal offence, but if this was Parliament’s intention it is surprising in light of the care taken by the statutory draftsman to identify just two offences in the criminal lexicon.
Until recently, the SFO prosecuted the more serious City crimes. This included the landmark case in 2004 when four people were convicted of insider dealing and the main defendant was sentenced to 30 months’ imprisonment.
There is a public expectation that prosecuting agencies will be independent of those whom they prosecute, but unlike other government prosecutors, the FSA finances itself by charging fees to authorised firms carrying out regulated activities. This raises the uncomfortable spectre of the FSA prosecuting one of its major financiers, and possibly even a City institution or employee with whom an executive or non-executive director of the FSA has an existing or historic connection.
Moreover, Parliament has not equipped the FSA with the latest tools needed to deal with major instances of City crime. Asset confiscation and crime prevention lie at the heart of the Government’s agenda for tackling acquisitive crime, but the FSA can neither bring civil recovery proceedings under Part 5 of the Proceeds of Crime Act 2002, nor apply for a serious crime prevention order under the Serious Crime Act 2007. The FSA recently tackled a case involving international corruption, but here too it lacked the pre-investigation powers of the SFO.
Prosecutions of serious financial crime present enormous challenges and much has been learnt by the SFO from its experiences in the criminal courts. It is highly doubtful whether the FSA should be permitted to reinvent the wheel in terms of criminal prosecution in the most serious insider dealing cases. With the recruitment of new investigators and senior prosecutors, and an enforcement budget of around £43m, the FSA has altered the criminal enforcement landscape.
In the wake of the global financial crisis the spotlight has fallen on the FSA because of its perceived failure to regulate the City effectively. The crisis has many causes but failure to prosecute insider dealing is not one of them. Surely the FSA would do better to concentrate on improving its performance as a City regulator, instead of replicating the activities of a government agency whose principal statutory purpose is the prosecution of serious fraud and other forms of financial crime. While there is a close correlation between regulation and criminal prosecution, they require different skill sets. The FSA needs to master the former before expanding its operations to embrace the latter.