+ 44 20 7408 2448
IMS Asset Management and Securities Regulatory Update 2010 - Issue 2, April
Welcome to IMS Consulting's April 2010 regulatory newsletter. IMS is the largest independent asset management and securities industry regulatory consultancy in the UK. Our newsletter rounds-up some of the more material recent regulatory changes, themes and debates for wholesale asset managers and securities firms, while focussing on FSA related developments.
The last two months have demonstrated that the FSA is showing no signs of allowing the threat of its potential demise under a possible Conservative administration to detract from its increasingly public investigation and enforcement activity. Within the last month alone we have seen the arrest and naming of 7 individuals charged with insider dealing offences and the FSA publicly stating that it is investigating the activities of Goldman Sachs following allegations made by the SEC. This is a marked shift from the past when enforcement actions only entered the public domain after successful cases had been concluded, which in some cases was many years after the event.
Some may regard the FSA’s increasing enforcement profile as well-timed self-positioning, yet it would be dangerous to dismiss it as such. The FSA has been saying for some time now that it will create a credible deterrence from wrongdoing and there can be little doubt that the recent speed, volume and publicity of enforcement activity proves that they are being true to their word. The UK regulator has become increasingly enforcement-led (having for many years expressly described itself as not enforcement-led) and clearly now regards formal action against firms, and increasing fines, as being more acceptable outcomes than simply dealing with the issue at hand. While UK punishments may still not be in line with those on the other side of the Atlantic, there is a salutary lesson for all firms, that the risk faced should compliance failings occur is increasing exponentially.
The increasing risks associated with compliance failure are further illustrated by some of the issues explored in more detail in this edition of the IMS Regulatory newsletter. Rather than the FSA’s focus being exclusively upon high profile market abuse or trading cases, we report on how at the beginning of April the FSA raised over £4.5million in fine income from firms that were incorrectly reporting transaction data, showing that an operational failure can attract punishments in line with those associated with more headline grabbing cases. We also report on the new minimum financial penalties for market abuse cases and on the FSA’s claim that it is adding 460 additional supervisory staff to its complement to help it ensure that it spots failings in firms and the market place through “intensive supervision”. Regulated firms are now able to see quite what Hector Sants meant when he said at a Reuters event around this time last year that they should be “very frightened of the FSA”.
If you have any questions regarding any of the articles below, please contact Peter Moore, Stephen Burke or Chris Rexworthy. Alternatively telephone 
020 7408 2448 to speak to your usual IMS contact.
Click here for a PDF of the whole content of this newsletter (printer friendly version).
..........................................................................................The FSA publishes Financial Risk Outlook and its Business Plan for 2010
The FSA's Financial Risk Outlook (FRO) for 2010/11 was published in March,detailing the risks and issues that the FSA will be focusing on duringthe coming 12 months.
Regulatory sanctions and financial crime round-up
Our regulatory sanctions and financial crime round-up seeks to highlightsome of the more important recent industry-wide developments.
Corporate governance agenda - speech by the FSA's Managing Director of Risk
In March, Sally Dewar, the FSA's Managing Director, Risk, gave a speech onthe subject of the FSA's continuing focus on corporate governance andits plans to drive this agenda forward.
The FSA finalises new framework for financial penalty setting
The FSA has published its new penalties policy, which it says establishes aconsistent and more transparent framework for the calculation offinancial penalties.
Global short selling developments
Short-selling restrictions and disclosure, all the rage in 2008, are now back on theregulatory agenda following the conclusion of various lengthyconsultations.
FSA publishes CP10/9 Enhancing the Client Assets Sourcebook
The FSA recently published CP10/9 containing proposals for new ClientAssets Sourcebook (CASS) rules. The paper is largely a response to thecollapse of Lehman Brothers International (Europe) (LBIE) whichdemonstrated that not all professional clients fully appreciated theconsequences of prime broker insolvency and the impact this would haveon the recoverability of their clients' money and assets.
Transaction reporting: enforcement and regulatory updates
On 8th April, the FSA issued a Final Notice to Credit Suisse (the globalinvestment bank), Getco Europe Limited (proprietary trading marketmaker) and Instinet Europe Limited (riskless principal agency broker)in respect of breaches in complying with the transaction reportingrequirements.
Court of Appeal ruling on FSA/SEC co-operation
The FSA's ability to assist with overseas regulators' requests forinformation has been given a boost by the UK Court of Appeal, whichrecently ruled that the FSA could require firms to provide informationrelating to overseas proceedings, even where the information requestedby the FSA appeared to be above and beyond the scope of overseas claim.
SEC Registration Requirements for Investment Advisers
In 2009, the Obama Administration announced proposals to require advisersto hedge funds and other pooled investments such as private equityvehicles to register with the SEC.
Family ties and happy returns - changes to FSA Close Link reporting
The first four months of a new calendar year can be a busy time for manyinvestment firms, filled with various regulatory returns. Most of thesereturns are now submitted electronically using GABRIEL, the FSA'sweb-based platform. Now from 1 June 2010 Close Links reporting willalso be made electronically, whilst Controller reporting will continueto remain paper based.
Financial Action Task Force reinstates "blacklist"
The Financial Action Task Force (FATF) has reinstated its "blacklist",while simultaneously declaring that Iran is now the internationalagency's number one pariah state. FATF unveiled its new sanctionslist at a meeting in March 2010, which it described as a more dynamiclist that will allow countries to enter and exit more easily as theiranti-money laundering regimes evolve.
