The risk business
10 September 2001
5 November 2001
20 April 2011
26 November 2001
11 February 2013
23 May 2007
Andrew Whittaker and his legal team have a testing time ahead. While most people begin December wi-thout trepidation, looking forward to a week or so away from work with the accompanying Christmas excesses and indulgences, the legal team at the Financial Services Authority (FSA) will finally discover how sturdy its foundations for the introduction of the Financial Services and Markets Act (FSMA) really are.
Created in 1997 to oversee the financial services industry, the FSA's steady accumulation of additional regulatory powers culminates this winter. Come the end of November, the FSA will realise its full regulatory mandate with the implementation of the FSMA. The FSA will thus become the single governing entity of the entire financial services spectrum, from securities and futures trading to funeral planning.
As Whittaker is keen to point out, his in-house team has been right at the heart of history in the making. "There's a sense that we're creating something unique worldwide," he says. The FSA as a 'super regulator' will be the first regulatory body of a world market that has a single legal structure for regulation.
His team has been fundamental to the new regulatory regime. A lawyer working for the FSA is thus offered an opportunity to influence the way regulation is shaped, rather than just respond to the changes. Whittaker suggests that this is one of the reasons why the relatively high levels of attrition among FSA employees has not affected his in-house team. The FSA has long been a focus for headhunters seeking staff for the financial sector, but Whittaker's team has a high retention record.
Contrary to popular understanding, Whittaker's in-house team has no responsibility for enforcement. Andrew Proctor will take charge of the separate enforcement department in December when he joins from the Hong Kong Securities & Futures Commission. Rather, Whittaker's team provides legal advice to the board and deals with policy issues. Of late, preparing the ground for the implementation of the FSMA has monopolised much of his time.
The new legislation comprises more than 400 clauses, all of which necessitated involvement from the legal department. Whittaker has been fundamental to the whole process, from policy-making to establishing the steps needed to translate those policies for practical situations. The team has also been occupied with ensuring the legal soundness of the new FSA handbook of rules and guidance - all 16 volumes of it.
The rules applied by preceding regulators had to be consolidated into one coherent format and provisions made for consistency with EU law and the European Convention on Human Rights.
Whittaker's in-house division is split into three main teams - financial services, banking and insurance - with additional resources focused, among others, on EU directives and developments and the handbook. Whittaker emphasises the team-working aspect of his department, saying that a good fit for his division is someone who enjoys policy issues and variety in their in-tray.
So, what about the man guiding the legal direction of the FSA? Whittaker has spent the majority of his legal career within the organisation, acceding to the top job of general counsel in March 2000. He joined the Securities and Investment Board, which later became the FSA, in 1985. Having qualified in 1980 with Cameron McKenna, Whittaker spent time at Boodle Hatfield before joining the Department of Trade and Industry.
Whittaker's budget is a mere £3.5m, which covers the wages for his 40 lawyers and support staff - not an awfully large amount, considering the wide-ranging remit of the organisation and its legal team. The amount spent on external firms' fees differs from year to year.
Magic circle firms such as Clifford Chance and Freshfields Bruckhaus Deringer occasionally supplement the in-house knowledge, but the FSA, despite its auspicious position in the financial community, is never going to be a client of the magnitude of an investment bank or an insurance company. Whittaker argues that his team are the experts in the field of financial regulation, so why look elsewhere for knowledge?
"External firms have to be able to add value over what we can do in-house," he says. His key considerations when instructing law firms are the inevitable trinity - prompt and efficient service, good judgement and succinct advice.
Sounding a warning to external advisers, Whittaker says: "What we really want is a straight answer."
Litigation work is outsourced to panel firms, but the FSA broke new ground last month when it announced the appointment of the Centre for Effective Dispute Resolution (CEDR), which will offer mediation on certain civil cases brought by the FSA.
Commenting on his aspirations, Whittaker says: "I'd like to achieve an environment where the FSA is respected for the integrity of its legal work, where it is respected for the fairness of the way it operates, and where the people who work for me enjoy their work and appreciate the importance of what they're doing."
The FSA in-house department includes trainee lawyers amid its more experienced practitioners. "I think that someone who's keen to work for the FSA and keen to be a lawyer shouldn't be denied that opportunity," argues Whittaker. The team boasts a couple of trainees and a number of lawyers on secondment to the FSA. Preparing the new legislation has been a mammoth short-term project, and it has been the secondees who have handled this increased workload. Lawyers on secondment, too, have been known to remain with the FSA, so enthused are they by the work on offer.
"Our advantage is that we can look at the market as a whole," explains Whittaker. "We can see what's falling between the cracks." He makes the case that one institution failing to observe certain lapses would perhaps be a containable problem if it was restricted to that one organisation. The FSA is able to see whether that one incidence is endemic to all organisations operating under the same conditions.
In other words, the FSA should pick up trends that are perhaps not all that worrying in isolation, but would give cause for concern if translated across a spectrum. Whittaker says: "We've been through a period about legal creativity. As this becomes effective, we'll have to look much more carefully at managing legal risk." He admitted that there has been a dwindling confidence in certain sectors.
The highly publicised financial failings of Equitable Life and Independent Insurance, to name just a couple of obvious examples, have called into question the efficacy of the FSA and its abilities to monitor performance and to pre-empt problems.
The legal team's job is far from concluded once the regulations are written. "The issues are of such significance that we should try and sort out what we can," says Whittaker.
Whittaker accepts the charge that the new structure of the FSA is pre-eminently bureaucratic. It is more legally thought through, but he contends that this does not equate to a restrictive regulator. "I don't want to reach a situation where a problem arises and everybody reaches for their lawyers," he says. In theory, the new legislation should add clarity to the murky and confusing issue of financial regulation.
Head of legal and general counsel
Financial Services Authority
|Organisation||Financial Services Authority|
|Legal Capability||40 lawyers in regulation|
|Head of legal||General counsel Andrew Whittaker|
|Reporting to||Chairman Sir Howard Davies|
|Main law firms||Clifford Chance, Eversheds, Freshfields Bruckhaus Deringer and Norton Rose|