Troubled FSA enlists enforcers

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The Independent Online
THE FINANCIAL Services Authority (FSA) yesterday outlined plans for a new impartial enforcement committee encompassing representatives from the City and the wider community.

The move is aimed at defusing widespread criticism in the City and the legal profession about potential abuse of the FSA's wide-ranging powers.

Howard Davies, the chairman of the new financial services watchdog, said yesterday that he believed the proposals would meet the concerns - expressed since the draft Financial Services and Markets Bill was published in June - about whether the FSA's procedures were consistent with "natural justice".

Mr Davies pointed out that anyone contesting the FSA's findings would also have recourse to both an independent tribunal to be set up by the Lord Chancellor's office and a judicial review.

"We recognise the concerns that have been expressed as to how we shall exercise our powers. It is clear that we need to demonstrate accountability, transparency, and fairness in all our processes," he said.

He added: "The aim is to present an approach which is fair, not too costly and able to respond to mischief effectively and efficiently."

Legal experts have warned that the legislation as currently drafted would make the FSA in effect "judge and jury" in deciding whether to fine or suspend individuals and firms.

This is a clear breach of the European Convention of Human Rights which lays down the rights of defendants to have their case heard impartially.

The concern has been heightened by the fact that, unlike the Securities and Investments Board which it replaces, the FSA is a statutory body. It also has the power to impose unlimited fines on both firms and individuals as well as lifetime bans.

The Bill allows for the first time people outside the financial services industry to be disciplined for market abuses which are not serious enough to warrant criminal action.

Because of the complexity of the legislation, the Government has proposed that the Bill be scrutinised by a joint committee of both Houses before being put before the House of Commons next year.

In its latest consultation document Financial Services Regulation: Enforcing the new regime, the FSA yesterday recommended that the enforcement committee, which would be directly responsible to the FSA board, would have the final say in whether to proceed with action against a firm or individuals. It would also serve as a tribunal to which those under threat of suspension or fine could put their case.

According to the consultation document, the enforcement committee should include both "practitioners" and "public interest representatives".

These would be drawn from a panel of people appointed by the board to sit on the committee. The committee would most probably have a full-time chairman.

Philip Thorpe, the director in charge of enforcement, said that the precise format of the committee had yet to be established.

However, he said that while industry representatives would clearly not be in the majority, "industry validation is very important if the decisions are to carry weight".

Defendants would be able to put their case orally as well as having the chance to see the evidence on which the case against them is based.

At present 95 per cent of cases are settled internally without need for outside appeal.

Mr Davies said he hoped most cases would continue to be settled by agreement.

"If you found a high proportion of cases were being appealed and overturned then clearly something was going wrong."

The paper also obliges the FSA to inform people when they are being investigated and bars it from using information obtained under compulsion to be used in criminal prosecutions.

In addition, the FSA says it it will prosecute in all cases where there is sufficient evidence to do so and will not seek to impose a civil fine - which requires a lower burden of proof - where it is pursuing a criminal prosecution.

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