Louise Hodges, partner, Kingsley Napley
Watchdog still has some bite
11 June 2012
24 February 2014
10 January 2014
20 November 2013
21 February 2014
11 September 2013
Despite the FSA’s imminent demise, the regulator is still pursuing financial wrongdoing
Although the days of the FSA are numbered and plans are already afoot for its replacement next year by new regulatory bodies the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), its mission, certainly on the enforcement side, remains undimmed.
Its enforcement function is due to transfer to the FCA, which will take on responsibility for the regulation of conduct across the financial services sector. Yet despite the internal upheaval this will entail, the FSA has maintained its focus on market abuse and insider dealing, contrary to the expectation of many. It continues to instigate a large and increasing number of insider dealing prosecutions. It has, since 2009, secured 14 criminal convictions for insider dealing, with prosecutions underway in respect of 11 other individuals.
Perhaps more significant, though, is the increasing complexity of cases being tackled by the FSA. The Blue Index case, in which three defendants pleaded guilty before trial and are due to be sentenced on 19 June, is the FSA’s first cross-jurisdictional prosecution and saw it work in parallel with its counterparts in the US Securities and Exchange Commission and the US Department of Justice.
Such cases also demonstrate that the FSA has a growing appetite for risk. In 2010, the authority lost its first insider dealing prosecution (R v McFall, Rimmington and King (2010)), with all three defendants being found not guilty. The Blue Index case saw the FSA pursue two former Blue Index employees to trial only to see both acquitted last month. While such defeats will no doubt have stung the FSA, they nevertheless send out a strong message to the City that the authority is now willing to take on cases it may lose.
On the regulatory side, the FSA has continued to push for record fines. Last month, it announced that it has decided to fine Alberto Micalizzi, the former chief executive of Dynamic Decisions Capital Management, £3m and to ban him from performing any role in regulated financial services for not being fit and proper. The FSA’s decision, on both merits and penalty, is being referred to the upper tribunal, but if upheld this would be the FSA’s largest-ever fine for an individual in a non-market abuse case.
Significantly, the SFO had already investigated Micalizzi and taken no action. With the enforcement capabilities of the SFO in doubt in light of both this case and its handling of the Tchenguiz investigation, the FCA is likely to become the UK’s largest and most prolific prosecution agency in the area of financial crime.
The enforcement function within the FCA will have a broader remit and, inevitably, a commensurate increase in powers and funding. More importantly, it will be under massive political pressure to be seen to be cleaning up the financial sector in the wake of a series of scandals that has shaken public confidence in the industry and to prove its mettle as the new all-powerful organisation brainchild of the Coalition.
Those who predicted the institutional paralysis that often sets in during such a fundamental restructuring have been proved wrong. The FSA’s appetite for instigating and pursuing prosecutions shows no sign of abating. If anything, the very opposite seems to be the case.
Jill Lorimer, an associate in the criminal and regulatory team at Kingsley Napley, assisted with this article