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IMS Asset Management and Securities Regulatory Update, March 2011
Someone once said that the regulation and supervision of financial services firms should not “seek to achieve the impossible task of protecting fools from their own folly”, but should rather “be no greater than is necessary to protect reasonable people from being made fools of”. That someone was Professor LCB Gower whose review of UK financial services led to The Financial Services Act 1986 which received royal assent in November 1986 and took effect in April 1988. Professor Gower died on Christmas Day 1997 aged 84, seven months after the then Chancellor of the Exchequer, Gordon Brown, announced the latest reform of financial services regulation in the UK and the creation of a new unified regulator called the Financial Services Authority (“FSA”). The FSA itself will, of course, cease to exist in a few short years and the acronym “FSA”, long associated with UK financial services, will revert to usage by the Food Standards Authority and the Football Supporters Association.
So, what would Professor Gower make of the current wave of regulatory change sweeping across the UK, Europe and North America? In our outlook for 2011 we commented upon the growing connection between the regulatory and political environments. We suspect that this is something that Professor Gower would have fully appreciated and understood. However, the international dimension to regulation would possibly have surprised him, as would the degree to which the UK is obliged to adopt and adhere to regulatory obligations crafted by politicians beyond these shores
This edition of the newsletter revisits the paramount and pressing themes of change to the UK regulatory environment, the extension of the Approved Persons regime and the continued tightening of the client money and assets regime here in the UK. The article on the Bribery Act reports on the delay in implementation, which should afford firms the opportunity to better position themselves to respond suitably to what has been described as “the toughest anti-corruption legislation in the world”. The article on Expert Networks discusses the biggest regulatory issue currently under consideration in the US that has arisen as a result of “business as usual” rather than the financial crisis. Lessons from this latest chapter of US securities law enforcement can be detected and gleaned to enhance anti-market abuse systems and controls at investing firms here in the UK, something that the UK’s FSA has been exhorting all to do for what now seems like years.
Our newsletter then concludes as usual with a discussion of recent enforcement cases. In each case, readers should note the regulatory themes in play and also assess what lessons can be learned and built into a firm’s preventative systems and control.
If you have any questions regarding any of the articles below, please contact Peter Moore, Stephen Burke or Alan Leale-Green. Alternatively telephone 020 7408 2448 to speak to your usual IMS contact.
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“You are approaching Twin Peaks: Population 30,000”
Readers will recall how last summer the Coalition Government launched a consultation, “A new approach to financial regulation: judgement, focus and stability”, to gather views on its proposals to reform the UK's financial regulatory framework, providing the Bank of England with control of macro-prudential regulation and oversight of micro-prudential regulation. A new Consultation titled “A new approach to financial regulation: building a stronger system” was subsequently published on 17th February 2011.
Amendments to the FSA Approved Persons’ regime in 2011 – ready, steady..
The FSA’s changes to its Approved Persons regime, brought in response to the Walker Review and set out in Policy Statement PS10/15, will become effective on 1st May 2011. Firms should now be in the process of assessing the impact of the changes on their registered individuals and considering whether any new registrations or notifications are necessary.
Expert Consulting NetworksSurreptitious wiretaps, multiple targets and plea bargains will be familiar to viewers of cult television programme The Wire. However, the use of such aggressive investigative techniques in relation to capital markets first revealed itself in late 2009 on the other side of the Atlantic. US financier Raj Rajaratnam and his now defunct hedge fund, Galleon, are now at the centre of an investigation into an alleged insider trading scandal that has shocked the financial world.
Anti-graft code delayed: further slippage in implementation of UK Bribery Act
The UK’s Bribery Act 2010 (“the Act”) received Royal Assent in April 2010, after what seemed like (and to a degree actually was) decades of reports and draft bills. The Act repeals all previous bribery provisions and replaces them with the crimes of bribery, being bribed, the bribery of foreign public officials and the failure of a commercial organisation to prevent bribery carried out on its behalf.
Cass-cade: further tightening of the UK client money and assets regime
In our last newsletter, we reported on the changes that the FSA is implementing in 2011 to strengthen firms’ client money and assets controls and oversight. In February 2011, the FSA published CP11/4: “The Client Money and Asset Return – Operational Implementation”, the latest in a number of measures post-Lehmans to tighten the regime for handling client money and assets in the UK.
Enforcement roundup
Since the turn of the year, the Financial Services Authority (FSA) Enforcement and Financial Crime Division has been busy gathering fines in excess of £12.4mn and securing ground breaking convictions and in some cases custodial sentences for insider dealing . Indeed, insider dealing dominates our compendium of enforcement cases. With criminal convictions and civil actions mounting, it is imperative that firms and individuals remain vigilant – be afraid, as Hector Sants once said.
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