The workings and decision-making of the Financial Services Authority (FSA) can appear complex to clients in the regulated sector. Enforcement action is a particular concern for firms. Recent high-profile cases, such as the FSA’s £750,000 fine on hedge fund manager GLG Partners and its former managing director Philippe Jabre, demonstrate the real reputational risks for firms’ clients that fall foul of the rules. If a client should have a run-in with the regulator, insight into the way it functions is invaluable.
The best way to find out how the FSA really operates is to work there. Staff secondments provide a unique opportunity to gain this insight without giving up your regular job.
I was seconded from Allen & Overy‘s litigation department to the enforcement division of the FSA for six months in 2004-05. I returned to the FSA as a permanent member of staff earlier this year.
There are currently five solicitors from leading City firms seconded to the enforcement division. Most of the lawyers in enforcement come from a contentious background. The caseload suits both civil and criminal practitioners, who work on a diverse mix of FSA disciplinary cases, proceedings in the Financial Services and Markets Tribunal, action in the civil courts under the Financial Services and Markets Act 2000 and criminal prosecutions, notably for insider dealing and criminal market abuse.
Secondees are integrated fully into the legal work of the division. The way the enforcement division is staffed means the secondees are also part of multidisciplinary teams, for example working with forensic accountants and investigators. It is this insight into the way the investigative and disciplinary process and FSA litigation operate that is the main benefit of a secondment. Through seeing how investigations are conducted, how disciplinary cases are taken through the FSA and tribunal processes and how court-based work is prosecuted, lawyers gain an understanding of the collective enforcement ‘mind’ of the FSA. This is a vital tool in assisting clients on the receiving end of the FSA’s attention. A secondment also provides the ideal opportunity to build relationships with the people taking FSA decisions.
This is, of course, a two-way process. Lawyers from private practice with hands-on experience of their clients’ sectors provide the enforcement division with equally useful insight into the areas the FSA regulates. Recent secondees, for example, have had a focus on insurance work, as this sector only came under the FSA umbrella at the start of 2005. Secondees therefore also play a part in educating the FSA.
FSA director of enforcement Margaret Cole says: “The FSA has been criticised in the past for being out of touch with the companies it regulates and not understanding their businesses. That’s something the FSA is committed to addressing and secondments provide an important means of staying in touch with companies and understanding what they’re doing”.
In line with this, Cole has instituted a programme of outward secondments, where enforcement lawyers spend time working in-house at companies and at firms. For example, barrister Vanessa Mead is on secondment to Morgan Stanley’s legal and compliance department, where she has worked with lawyers and compliance professionals covering different business areas within the bank. She has found the secondment an invaluable opportunity to learn how a large investment bank operates, together with the types of issues it manages. The understanding gained will inform her work and that of others in the wholesale group within the enforcement division.
Whether into or out of the FSA, lawyer secondments provide an unrivalled opportunity to get to know the people and work of the FSA first-hand. This can only benefit the regulated community and its professional advisers, as well as the regulator itself.
Richard Sims is an associate at the Financial Services Authority