FSA enforcement review set to disappoint

Law firm Lawrence Graham says sources close to the FSA review into enforcement action believe the report due next week will fail to recommend sufficient reform to the regime.

Instead, recommendations are set to focus on specific measures to bolster “internal workings and processes”, stopping short of reviewing in what types of case the FSA should execute its enforcement powers, Lawrance Graham states.

Regulatory partner Angela Hayes, previously employed by the FSA, says the focus is about fine tuning rather than fundamental change to the way the regulator approaches this area of responsibility.

"A lot of institutions have been fined over the years, even when they've been going to great lengths to put their houses in order and compensate customers.

"The question that needed to be asked, but unfortunately hasn't been, is whether swinging fines and heavy discipline should be meted out to all or only reserved for cases of deliberate abuse," Hayes says.

The review has come about following challenges to the FSA’s enforcement process by insurer Legal & General over how to estimate numbers of cases of endowments mis-selling.

More recently, the FSA has been criticised by other lawyers over its handling of enforcement action against Citygroup, which was fined £13.9m for its failure to control bond traders.

What has caused alarm in this case is the suggestion that despite there being little evidence of deliberate market abuse or specific breach of rules, the regulator still decided to apply a penalty, potentially setting a precedent that any factor moving prices in the market could be deemed enough to trigger an enforcement action.

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email jonathan.boyd@incisivemedia.com.