Insider dealers will not be charged for a year, says FSA

Financial watchdog is building case against those arrested in dawn raids
  • @MrNickClark

The City's financial watchdog has admitted that those arrested in connection with its largest ever insider dealing crackdown will not be charged for at least a year as officials attempt to build a case against them.

The Financial Services Authority (FSA) has bailed six of the seven people hauled in last week after a series of dawn raids. An insider said the regulator was poised to issue a statement but it was being held up because one of the accused was in hospital.

A spokesman for the FSA said its team will now compile the information to build a case to put before magistrates, but the process would take some time to complete. "We arrested a couple last year and they were only charged last week. That was two people in a simpler case. This investigation is much more complex."

The regulator has not named any of those arrested after a two-year investigation, but they include senior employees from Deutsche Bank, Exane BNP Paribas and Moore Capital Management.

The process has been held up by Iraj Parvizi, who works at the hedge fund Aria Capital. Mr Parvizi was taken to hospital shortly after his arrest on Tuesday, although it was unclear why, and he is yet to be interviewed.

Among the prominent members of those arrested is the Deutsche Bank managing director Martyn Dodgson, who worked on the team advising the UK Treasury on managing its stakes in Royal Bank of Scotland and Lloyds Banking Group. Another senior figure was Clive Roberts, the head of sales trading at Exane BNP Paribas.

Julian Rifat, a trader at the hedge fund Moore Capital, and Novum Securities' trader Graeme Shelley were also arrested.

The FSA used 143 employees to raid 16 homes in London and the Home Counties as part of the investigation with the Serious Organised Crime Authority on Tuesday. The following day, the stockbroker Ben Anderson was arrested at Gatwick Airport after he returned from the Caribbean.

The FSA said the suspects suspected of being involved in a "sophisticated and long-running insider dealing ring". It believes they passed information to traders, who used it to make significant profits.

The regulator is looking into the possibility that those accused engaged in front running of block trades, according to the news agency Bloomberg. This form of front running involves making a profit using the knowledge that a large block of shares was to be traded, possibly by a corporate client. As block trading involves the sale of significant stakes the share price tends to be heavily affected.

The FSA this month outlined plans to target market manipulation in the City more actively. Its outgoing chief executive, Hector Sants, said that insider dealing was at an "unacceptably high" level.

In the past 12 months, there have been three insider dealing prosecutions and a series of charges brought. The watchdog is also believed to be close to filing criminal charges against alleged members an insider dealing ring that used information leaked from a London printers that printed prospectuses for deals for investment banks such as Cazenove and UBS.

The FSA faces the threat of closure under a Conservative government but Mr Sants still pledged to hire 460 employees to boost its more punitive stance on market abuse. It is also increasing its annual funding 10 per cent to £455m.

End of an era: FSA to abolish sales commission

Independent financial advisers will no longer be able to charge commissions when selling savings and investment products, the Financial Services Authority said yesterday, unveiling the biggest shake-up in the financial advice market for a generation.

From 2013, investment managers and insurers will no longer be able to pay advisers a commission to sell their products. Instead, savers will have to be told what their advice costs upfront, though they will still be able to spread the cost of paying it over time.

The reform is intended to counter allegations that some independent advisers recommend the products of providers that pay the best commissions rather than the right deals for savers. "People need to know their adviser is acting in their best interests," said Sheila Nicoll, the FSA's director for conduct policy. "The new rules are designed to boost confidence and trust in the retail investment market by removing commission bias, actual or perceived, and exploding the myth that investment advice is free."

The FSA has faced criticism from some parts of the financial services industry since proposing this reform last year, with many advisers earning 80 per cent of income from commission. But consumer groups welcomed the announcement. "Once the new rules are in place, independent advice will have to be truly independent," said Adam Phillips, chairman of the Financial Services Consumer Panel.