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June 3, 2012 9:35 pm
After three years of toiling in the regulatory shadows, Patrick Spens is ready to step into the limelight.
A former Citigroup proprietary trader and hedge fund manager, Mr Spens decided to change sides after his fund’s leading investors were caught up in the collapse of Bear Stearns.
He joined the Financial Services Authority in 2009 and took charge of building its market monitoring arm – the division charged with receiving more than 13m transaction reports daily, spotting suspicious trades and referring possible cases for enforcement.
“We source the cases, we find the cases, we investigate the cases. We get them to a stage where we think there is a case to answer. Then we will refer them to enforcement,” he says. “We are constantly enhancing our technology to look for trading patterns and [we] write pattern-matching, recognition algorithms to try and look for anomalies.”
Up to now, the 55-person market monitoring team has been content to stay in the background, allowing their colleagues in the enforcement division to gain the glory for the FSA’s 14 successful criminal prosecutions of insider dealing since 2009, as well as £9.3m in fines for seven groups that failed to file required daily transaction reports.
However, Mr Spens has taken a more public stand recently in two areas – his division is targeting groups that fail to file suspicious transaction reports (STRs) when anomalous sales take place and it is pushing City professionals to be more careful with the inside information they receive. “This is all part of a multi-multi-year cultural change,” he says.
He recently wrote to nearly 300 groups asking them to explain why they had filed a handful or fewer STRs over the past few years, and he will launch a series of spot checks to see whether groups have the proper controls and reporting procedures in place. The FSA currently receives about 500 STRs a year and about the same number of referrals and tips from other sources.
Mr Spens has also launched a drive to improve the process of “wall-crossing” – in which participants share inside information before a deal – and his division contributed to a recent string of enforcement cases involving market professionals, including Andrew Osborne and Ian Hannam whom the FSA says failed to keep information confidential. Mr Hannam denies wrongdoing and is taking his case to a tribunal
“Insider dealing has always been there, always will be ... Inside information is not a bad thing. It’s what you do with that information,” Mr Spens says.
Roughly two-thirds of Mr Spens’s division is made up of case officers who investigate specific transactions. The rest monitor the reports filed by hundreds of City institutions, both to insure that ordinary trades and suspicious transactions are properly reported and to spot trends and looming threats such as asset bubbles. The division will move into the Financial Conduct Authority when the FSA is split up next year.
A recent opening in the division drew 78 applications, including 75 from outside the FSA. Eighteen months ago, a similar open job attracted just one résumé, he adds. “I sense that the world outside the financial world is beginning to believe in us and beginning to see that there’s some credibility behind us and some momentum,” he says.
Market cleanliness statistics have certainly helped. After nearly half a decade when abnormal trading occurred before nearly 30 per cent of all UK mergers and acquisitions, the proportion dropped to 21 per cent in 2010.
“When you are outside the regulator you have a view that they take too long, but you want the regulator to make the right decision every time. Give them the time they need to make the right decision,” he says.
Mr Spens has a personal reason for wanting to make sure the regulator gets it right. His father, Lord Spens, was a buccaneering City dealmaker who was caught up in the 1986 Guinness share price support scandal. Although he was eventually acquitted, the case derailed his banking career and severely taxed his health.
While some outsiders might see the son’s move as quixotic, Mr Spens said the explanation is simple.
“It probably sounds a bit corny, but I was trying to do my bit,” he says.
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