Authority figure

On 18 July 2005, Margaret Cole took over at the helm of the Financial Services Authority’s (FSA) enforcement division. The very next day the critical Strachan Review into the division’s processes was published, directing the full force of the public spotlight onto the FSA’s disciplinary review process and casting doubt on almost every aspect of the enforcement team that Cole now leads.

Cole says the six months since have been a “gruelling” experience as she has sought to correct the legacy of problems she inherited and implement the swathe of changes recommended by the review.

“I didn’t even get a chance to have an induction, as the next day the Strachan Review was published and I had a breakfast briefing with a group of lawyers back-to-back with a briefing with the trade associations and a press conference,” she says.

But Cole readily admits that it was this challenge of correcting and advancing the enforcement process that drew her to the role and prompted her to move across from White & Case‘s litigation group.

“Regulation is constantly evolving and I have an opportunity to see it at the coalface,” she explains. “I was given a priority agenda as part of the job to make changes, to implement different systems.”

As head of enforcement, Cole oversees 90 lawyers and 20 paralegals who are split into eight sub-units to reflect the FSA’s separate retail and wholesale functions.

“It’s a big job and a huge division, but it’s challenging and interesting,” says Cole.

Despite her diminutive appearance, Cole is a tenacious lawyer. She helped launch White & Case’s London dispute practice in 1995 after joining from Stephenson Harwood, and her experience includes representing the Royal Bank of Scotland in proceedings in London and New York regarding an Enron-related $500m (£284m) swap transaction.

She also beat 12 other finalists during the FSA’s global search for a successor to former director of enforcement Andrew Procter, who was poached by Deutsche Bank to head its compliance team.

At the time of Cole’s appointment, the FSA bore the brunt of regular public criticism, spurred on by the Financial Services and Markets Tribunal’s savaging of the regulator for the way it handled the case of Legal & General (L&G) and its supposed endowment mis-selling. It was this public humiliation that proved the catalyst to the FSA ordering the Strachan Review. It had become clear throughout the course of the tribunal hearings that the FSA’s internal processes were defective, in part because of the close ties between the investigative enforcement division and the disciplinary decision-making regulatory decisions committee (RDC).

As a result, a large number of the review’s recommendations, and the subsequent changes implemented by Cole, centred on separating the investigative and decision-making arms of the FSA.

Cole explains that, in the past, the enforcement division was allied closely to the RDC (which is led by former Clifford Chance partner Tim Herrington) and was able to present to the committee in meetings so private that they were closed to the people and/or companies in question.

This has since been corrected by Cole and meetings between the two arms are now recorded and made available to defendants. The enforcement division can also negotiate early settlement agreements, thus preventing cases reaching the RDC.

“It’s very transparent now,” Cole explains. “In the past, although it was before my time, enforcement got to present to the RDC in private. We’re now able to liaise with the RDC about our processes, but not cases.”

But one of the most significant changes implemented by Cole, and the one that makes her statement of intent clearest, is the recent creation of a separate unit to review the evidence and recommendations that the enforcement division puts before the RDC.

Entitled the ‘Litigation and Legal Review Unit’, it will also examine subsequent litigation and advocacy matters, such as those taken before the Financial Services and Markets Tribunal.

Cole says it is hoped that the new unit will result in more successful rulings before the committee by ensuring that cases are “effectively stress-tested before going before the RDC”. But industry commentators have been more scathing, stating that the group is simply trying to “prevent the next L&G fiasco getting too far down the track to stop”.

It is therefore unsurprising to learn that the new unit, which came into place on 1 January, is already generating somewhat mixed reactions within the legal community. While one magic circle lawyer welcomes the move as a positive step towards more relevant and well-researched disciplinary cases, another City lawyer raises concerns that the unit could potentially “result in a bottleneck” and drastically slow down the disciplinary process.

Either way, Cole cannot avoid the cold, harsh reality that many lawyers claim they have “not been impressed by evidence put before the RDC” in the past.

A clear example of this resistance was seen when the regulator was forced to back down from its case against former Shell chairman Sir Philip Watts following criticism over his treatment in the regulator’s £17m fine against the company for an overstatement of its oil and gas reserves.

However, Cole is hopeful that the changes she has implemented within the enforcement division will result in more “robust” rulings in the future. Indeed, there are already clear signs of an emerging trend towards tougher sentences, says Cole, who cites as an example the case against AIT last year, when two directors of the banking software firm were convicted and sentenced to imprisonment in the first criminal market abuse case taken to court by the FSA.

“This sends out a serious message that you can expect to see more criminal prosecutions in extreme cases,” she warns. “This is just one of a range of powers we have, and it’s important that we use it.”

The past few months have been about the design of new enforcement systems and bedding those down. Now it is time for the FSA to get on with the job.


Organisation: Financial Services Authority
Job title: Director of enforcement
Other responsibilities: Member of executive committee and regulatory policy committee
Legal capability overseen: 90 lawyers, 20 paralegals Reports to: Chief executive officer John Tiner
Career history: Partner at White & Case, London (1995-July 2005); partner at Stephenson Harwood