FSA Enforcement

Ian MasonHead of Department, Wholesale Group

Enforcement Division

June 2005

Enforcement in the FSA context

• FSA is not Enforcement led

• Small proportion (12%) of total budget

• Selective risk-based approach

Risk-based enforcement: selection of cases for investigation

• Risk means risk to FSA’s four statutory objectives

– Market confidence– Public understanding – Protection of consumers– Financial crime

• Risk based approach operates at two main levels

– Strategic planning and resourcing– Individual case resourcing

FSA Enforcement Division

• About 250 staff

• Forensic investigators, lawyers and support staff

• Wholesale and Retail Groups

• Reports directly to CEO

• Currently about 150 cases open

FSA Enforcement – key priorities

• Senior management responsibility

• Market abuse and insider dealing

• Breaches of the Listing Rules

• Conflicts of interest

• Mis-selling, complaints handling

• Financial promotions, financial resources

• Perimeter cases

Investigatory Powers

• FSMA part IX, sections 165–177

• Powers to require information

• Appointment and powers of investigators – s167 and 168

• Skilled persons

• Search warrants

The Enforcement Toolkit

CIVIL JUSTICECIVIL JUSTICE CRIMINAL JUSTICECRIMINAL JUSTICE

•Discipline

•Vary firm’s permission

•Withdraw authorisationor approval

•Prohibit individuals

•Restitution

•Sanctions for Market Abuse

•Injunctions

•Restitution

•Insolvency Procs

•Prosecute

For What?

Breach of Gen Prohibition

Misleading statements

Misleading practices

Insider Dealing

M L Regs

FSA ADMIN POWERSFSA ADMIN POWERS

Urgent Action

appointmentof thirdparties

internationalenforcement

issues criminal proceedings

Regulatory DecisionsCommittee

collectiveinvestmentschemes

FSA decide to useenforcement tools

publicity

handling specific issues

investigations: gathering information anddocuments

projects - planning, controland organisation

urgent civilaction

urgentadministrative

action

Financial Services andMarkets Tribunal

deciding to takefurther action

unauthorisedbusiness

insolvencyproceedings andorders againstdebt avoidance

civil proceedings

appointmentof a skilled

person

Enforcement: An Overview of the process

RDC / Tribunal Process

• Warning Notice

• Written & Oral Representations

• Decision Notice

• Referral to Tribunal

• Final Notice

• Publicity

• Settlement / mediation available throughout

Sanctions

• Factors include

– Seriousness

– Deliberate or reckless behaviour

– Financial resources

– Conduct after contravention

– Disciplinary record and compliance history

2004 Outcomes

• 76 cases through RDC

• 38 references to Tribunal

• 4 Tribunal decisions

• 11 Tribunal cases struck out / withdrawn

• 101 Final Notices

• Over £21 million in fines

• Over 280 international requests

International Co-operation & Information Sharing

• International co-operation between regulators – crucial in the context of regulating an increasingly global market

• Advance warning of problems through pro-active sharing of intelligence

• Assistance with investigations involving cross-border elements e.g. obtaining documents and testimony

Number of international requests received by the FSA in 2004

1822

31

2318

16

2924

43

2825

22

-5

101520253035404550

Jan-

04

Feb-0

4

Mar

-04

Apr-04

May

-04

Jun-0

4

Jul-0

4

Aug-04

Sep-0

4

Oct-0

4

Nov-04

Dec-0

4

Trend

EU ONLY64%

Others27%

US9%

Number of requests

Requests for Assistance

Incoming Requests• What do incoming overseas requests

relate to?– Transaction data

– Good standing information

– Regulatory information from FSA’s files

– The exercise of statutory powers e.g. “sitting in”

– MLAT requests

Requests for Assistance

Breakdown by type of requests received duringJune - December 2004

Transaction data, 48%

Regulatory information, 17%

Proactive disclosure, 6%

Interview (s), 3%

Goodstanding/authorisation

enquiries, 23%Bank records, 1%Others, 3%

FSA’s power to co-operate – statutory provisions

• Section 354: General duty to co-operate– The FSA must take such steps as it considers appropriate to

co-operate with other persons … who have functions• similar to those of the FSA; or • in relation to the prevention and detection of crime

• Section 169: Assistance to overseas regulators

– Information gathering and document production (section 165)

– Appointing investigators (section 168(3))

– A direction permitting a representative of an overseas regulator to attend and take part in interviews (section 169(7))

– Powers are backed by contempt sanctions (section 177)

Considerations in giving assistance

• Reciprocity of assistance• Whether the assertion of jurisdiction has a close

parallel in the UK• Seriousness of the case and its importance to

persons in the UK• Whether in the public interest• Contribution to cost• Such considerations do not apply if we consider that

the exercise of investigative powers is necessary to comply with a Community obligation

Disclosing Information to ORs

• Sections 348 and 349: a general prohibition on disclosure of “confidential information” which

– relates to the business or other affairs of any person

– is received by the FSA in discharge of its functions

– is not available in the public domain

– is not summary information

• Treasury Regulations provide “gateways” enabling disclosure

• Improper disclosure constitutes a criminal offence

Considerations in disclosing informationto non-EEA regulators

• Where “Directive information” is to be disclosed to a non-EEA regulator there must be a “co-operation agreement”

• Information must be subject to guarantees of equivalent confidentiality protection

– Overseas regulator’s self-certification that equivalence can be met

– FSA’s consideration of relevant factors including overseas regulator’s self-certification, consideration of legislation in relevant jurisdiction and our knowledge of the applicable regime

• If it concerns personal data, considerations under the Data Protection Act will also apply

Requests for assistanceWhat should requests contain?

• Description of underlying facts• Connection with your jurisdiction & suspected breaches of

your legislation• Responsibility for enforcing that legislation• Information/assistance that you require• Information useful in identifying relevant persons and

documents• How that information/assistance will assist your enforcement

functions• Intended use• Time within which assistance required• Preferred form in which information is required• Related requests and other UK bodies contacted• Special precautions (sensitivity/confidentiality)• Contact information