Setting too much store by the FSA?

As the London Stock Exchange prepares to see the lion's share of its regulatory powers shifted to the Financial Services Authority, the forum asks how it will affect the legal profession.

City lawyers are sceptical about the Chancellor of the Exchequer's decision to transfer the bulk of the Stock Exchange's regulatory powers to the Financial Services Authority (FSA).

Although the Stock Exchange will retain its control over the regulatory news service and the investigation of disclosures of market-sensitive information, under Gordon Brown's rule it will lose its role as the listing authority for public equity offerings.

Brown cites the Stock Exchange's proposal to demutualise and turn itself into a commercial company, potentially leading to conflicts of interest, as the reason behind the move.

The demutualisation is due soon after amendments to the Financial Services and Markets Bill are brought in next spring.

However, it is the increasing power of the FSA that is raising eyebrows in the City.

Is the FSA becoming too powerful? Will the transfer of listing authority to the FSA usher in a more liberally-minded regime? What are the likely consequences for lawyers?

Nick Holt, head of the capital markets department at Weil Gotshal & Manges, says: “To the extent that the move increases the ability of the UK authorities to list different and innovative products, I welcome this.

“The FSA may be more open-minded than the Stock Exchange when it comes to new IT companies and structured derivative products such as collateral bond obligations, which lawyers are increasingly becoming concerned with.

“This move will be successful if it draws more people to the London Stock Exchange.”

And he adds: “I don't think it is going to cost lawyers a lot of money to comply with the new procedures.”

However, Peter Richards-Carpenter, financial services partner at Rowe & Maw, predicts the FSA will adopt a more cautious attitude to listing public equity offerings than the Stock Exchange.

He says: “As a regulator, the Stock Exchange has a very good reputation for its swiftness and expertise in knowing when to intervene and when not to.

“I should think the FSA ethos would likewise be a cautious one, if anything more so.”

He adds: “To say the FSA has too much power is probably putting it too simply – the powers clearly need to be there to investigate wrongdoing and breaches of the rules.

“What creates concern is how those powers are exercised. There may be concerns about the administration of justice, although all these concerns are likely to be closely scrutinised as the bill goes through Parliament.”

He says: “These powers will all have to be looked at closely to ensure that people have confidence in them.

“At the moment we are all very confident about the strength of the City and its links, but we have to keep vigilant about whether the City will remain an attractive place for people to work.

“We have always been able to trumpet London as an open place for international business. If we introduce a system that turns out to be arbitrary in its powers then that will be a major issue on whether people go to London or Frankfurt or New York.”

Lindsay Hill, head of financial services at Fox Williams, claims a large part of the FSA's success or failure will depend on its personnel.

He says: “On a practical level there may be problems in transferring people across and you have to wonder whether there will be a brain drain.

“If powers are going to be transferred then there has to be some good management and they need to be sure that that's done quickly.

“It's all about credibility and if people see experts leaving then they are more likely to take their business elsewhere.

“The FSA has got a lot on its plate. It's being asked to do an awful lot very quickly and it will also have to regulate mortgages very soon.”