The Financial Services Authority is to toughen up its enforcement drive with a "harsher stance" on market abuse, involving a heavy recruitment drive, in an aggressive manifesto that may also be its last.
The City watchdog yesterday unveiled its annual business plan for the year. The 72-page document revealed a change of philosophy, ditching "light touch" regulation in favour of direct confrontation of wrongdoing.
Yet the regulator faces an uncertain future as the Conservatives have pledged to break up the FSA if they win the general election.
Hector Sants, the outgoing chief executive, hoped the change in philosophy and regulatory approach could head off such a move, saying it was "structure neutral". He added that its break-up would cause "significant structural disruption" and in requiring an Act of Parliament would take at least a year.
The uncertainty was not "helpful to staff morale or hiring," Mr Sants conceded, but he remained confident that the FSA would hit the proposed target of 460 new employees over the next 12 months to bolster the intensive supervisory agenda. He said the "proactive approach to supervision requires significantly more people than the old reactive model".
Bill Haynes, the chief executive of the financial services recruiter Verridian, said: "The uncertainty isn't going to be helpful. Recruiters will have to do a bit of reassuring that there is a future for the FSA."
Mr Sants said the hiring plans were "consistent with the rates of hiring over the past 12 months," adding that the recovery of the financial market firms competing for employees would prove more problematic. This new "get tough" attitude has seen the FSA land its highest profile conviction when the former Cazenove partner Malcolm Calvert was sentenced to 21 months in jail for insider dealing last week.
In the past 12 months there have been three insider dealing prosecutions and "a number" of other individuals charged with both insider dealing and making false and misleading statements to the market.
Mr Sants said that insider dealing was "unacceptably high" and that the FSA would bring more enforcement and criminal cases in the next year. The annual funding requirement will rise 9.9 per cent to £454.7m, because of the supervisory enhancement programme and the recruitment drive.
Mr Sants said: "We recognise that any increase in fees is unwelcome, particularly in the current climate; however, the switch to intensive supervision has necessarily required costs to rise. If society wants a more proactive approach, it must accept that it will have a larger and more expensive regulator."
He stressed how different the FSA had become since 2001, when the budget was £296m and a staff of 2,000 regulated 9.400 firms. The projected 3,700 employees will this year cover 27,000 companies. "The FSA is now a wholly different organisation to that which existed before the crisis, with a new regulatory philosophy, new operating model and culture," he said.
Mr Sants said the shift "from retrospective intervention to proactive challenge" would include conducting annual stress tests for all major financial institutions, and a rise in mystery shopping and on-site visits to retailers. "This new approach is radically different and is built on the essential cornerstone of the intensive supervision strategy," Mr Sants said.
"This will be great if the FSA gets it right," Dan Hyde, of Cubism Law, said. "They just have to take care not to over-regulate and make the City anti-competitive."
Talking tough: Turner speaks out
Having irritated Britain's banks by describing them last summer as "socially useless", FSA chairman Lord Turner last night added insult to injury, insisting he did not regret the remark and adding that "economically useless" might have been a better description.
Lord Turner said banking reform should go further than authorities currently plan and warned against focusing only on making banks smaller or narrower.
The regulator, who also said there was a case for a financial-transactions tax, added: "We need to deploy a range of regulatory and macro-prudential tools, informed by a philosophy deeply sceptical of past arguments that financial liberalisation, innovation, and deepening is axiomatically beneficial."