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May 12, 2011 10:54 pm
The City watchdog has announced disciplinary action against two financial professionals in the first use of its power to warn the public of enforcement measures before the appeals process is complete.
The Financial Services Authority said on Thursday it was seeking to ban Derek Wright, an insurance broker, from the sector and to prevent Stuart Unwin, a pensions adviser, from holding positions of responsibility. Both men are taking their cases to the upper tribunal, which hears appeals against FSA decisions.
Such appeals used to be secret, but last year parliament gave the FSA the power to make cases public once its regulatory decisions committee hands down a decision notice.
The move is part of the FSA’s broader “credible deterrence” agenda, which holds that tough, well-publicised enforcement helps reduce financial crime.
The coalition government now wants even greater transparency and is moving to give the FSA power to tell the public of “warning notices” – the stage at which the regulator lays out its accusations but before it gives a decision.
“These notices constitute a landmark point for the FSA ... People will want to know whether the FSA is using this power consistently or selectively,” said Jake Green, a partner at Ashurst, a law firm.
Both steps have drawn sharp criticism in the City from people who say the early publicity could tarnish reputations unfairly. But FSA officials point out the US regulatory system and criminal prosecutors in the UK make charges public before they are sustained.
“It’s the equivalent of a charge sheet in a criminal case. Why the concern? Why is this any different?” said Margaret Cole, interim head of the FSA’s business conduct unit. “This is a move in favour of transparency that is quite modest.”
Enforcement officials point out that the vast majority of warning notices lead to regulatory findings. In 2010, only three of the 54 warning notices failed to lead to a decision, although the tribunal also sometimes modified penalties.
The effect of the change is modest because most cases settle before coming to the regulatory decisions committee. In the 2010-11 fiscal year, the FSA settled 89 per cent of cases against firms and 61 per cent of cases against individuals.
“The FSA has acknowledged there may be reputational costs but considers that as the number of enforcement decisions overturned is small, those costs are of ‘minimal significance’ because they are likely to be outweighed by ensuring earlier deterrence,” said Shane Gleghorn, a partner at law firm Taylor Wessing.
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