Enforcement is the new Big Thing
The FSA annual 'Enforcement Conference' was held on the 18th June, with the strapline "Credible deterrence: changing behaviour through enforcement action", and what a fascinating day it was. Fascinating for a number of reasons.
Hector Sants showed his face for a few minutes to introduce the day, and then vanished shortly after Margaret Cole (Director of Enforcement) took the podium and flexed her muscular enforcement credentials. "The FSA dream of a world where markets are clean, fair and orderly" she told us, and then proceeded to make it absolutely clear that the FSA is no longer messing about when it comes to enforcement, contrary to what the pundits may have previously concluded, following the whole Northern Rock debacle. It became very clear during Ms Cole's address that the FSA is determined to change behaviours, and see the robust use of deterrents as a means of achieving that goal. A number of recent high-profile enforcement actions against regulated firms were listed for us, including the recent £0.9m fine against Thinc, a company which opted not to attend the conference.
We were treated to an interesting divergence of preferences when it came to the nature of enforcement actions that the FSA could deploy. As a general rule, regulated firms appeared to consider the adverse publicity and the sheer costs of complying with enforcement actions as a sufficient deterrent. FSA speakers did, however, appear to be very fond of mentioning "higher fines" in this context, which may provide some insight into this issue from a regulatory perspective.
For me, the most enlightening aspect of the day was to identify the focus of the FSA's emphasis, as well as seeing what kinds of firms are interested in the whole subject of enforcement. So let's get the IFA involvement out the way first of all: there were three 'IFA-type' firms represented, one of which was 2020 Financial Services. Out of a total of 198 delegates, 45% were lawyers, most of them representing legal firms. I am pretty sure that, out of the remaining 108 delegates (accountants, consulting groups, real estate and product-providers), a large proportion of the compliance officers attending would also have been lawyers.
The FSA's own feedback form, which we completed at the end of the conference reflected this focus - it contained CPD codes for members of the legal profession.
Now, you could argue that perhaps this is inevitable. Perhaps a conference on 'enforcement', which usually involves some kind of criminal or civil action, would logically draw in members of the legal profession. Taking that as read, at the end of the day, I received the clearest impression that this entire aspect of regulation is now dominated by lawyers. The rules are drafted by lawyers. The enforcement process is managed by lawyers recruited by the FSA, and the results of that process now provide rich pickings for large legal firms and barristers. Even the language being used, and the discussions conducted on the Panels reflected the overarching dominance of the legal profession. The FSA may want to change behaviours, but one was left with the strongest impression that this was primarily to serve the interests of lawyers. Regulation may not have delivered many dividends for consumers, but it has certainly benefitted the legal profession!
How does the small intermediary firm fit into this intimidating structure? Good question. The only voice speaking on behalf of the IFA community was Gill Cardy, and one got the impression that the valid concerns she raised were ultimately of relatively little consequence to the Regulator. |
