Keith Oliver says that if the Financial Services Authority is going to be any more effective than SIB it needs to be accorded powers equivalent to the SFO
When the Securities and Investment Board (SIB) was set up 10 years ago, it was inaccurately described as regulation by poachers turned gamekeepers. SIB has provoked neither indignation nor apoplexy among those involved in financial wrongdoing. Investigation by “SIB officers” does not have the same impact as an investigation by the Serious Fraud Office (SFO), the DTI Inspectors or even a national newspaper.
Will the Financial Services Authority (FSA) be any different? Its operating framework will be the subject of forthcoming legislation, but it stated its aims in a consultation paper last month. They are: to protect consumers of financial services; to promote clean and orderly markets; and to maintain confidence in the financial system.
Is this regulatory deja vu? Too often regulators have been regarded as a soft touch, or out of touch with the needs of the investment community and, particularly, small investors.
Improved regulation of the financial services industry, which employs 5 per cent of the total UK workforce and accounts for around 30 per cent of the value of the FTSE 100 companies, is an important aim of the Government.
But the investor, whether the institutional board or the small shareholder, tends to think that the system is working until a financial scandal hits the front pages. Then the regulators are blamed, and derision is heaped on their inability to discover or expose the wrongdoers.
The fact that the authorised business in question has fulfilled its compliance requirements and provided no reason for the regulator to doubt its ability to meet both commercial or investment obligations is likely to be reported as further evidence of incompetence.
If the FSA, consistent with its objectives, is to make a lasting impact, those involved in the consultation process should encourage the decision makers to adopt a hands-on regulatory role with stringent and effective weaponry.
As yet, there are few signs that the FSA will have any significantly enhanced enforcement powers. If the FSA is to become an all-embracing body, then it must have sufficient gravitas to provide a viable alternative to criminal prosecution in appropriate cases. The threat of criminal prosecution by the SFO or other bodies may be a deterrent but it is an expensive one with an uncertain outcome.
The FSA must also have enhanced civil powers of intervention, including the ability to freeze assets expeditiously, enter premises and, where appropriate, seize passports without having to obtain a court order beforehand.
In other words it needs powers to equal and possibly go beyond those of the SFO, the DTI and other prosecuting authorities. Some will regard such powers as draconian, and they may well be susceptible to challenge following the forthcoming incorporation of the European Convention on Human Rights.
If the FSA is to boldly go where no UK regulator has gone before, it must be fully equipped to do so.