FSA doubles criminal team

Listen to this article


The number of criminal prosecutors pursuing insider dealing and other illegal market activity has more than doubled under the City watchdog, in the clearest sign yet of its aggressive new approach to enforcement.

Testifying before the Treasury Select Committee on Tuesday Hector Sants, chief executive of the Financial Services Authority, said the agency would clamp down on market abuse.

“The current level of market abuse is unacceptable,” Mr Sants told the panel.

The FSA has long been criticised for taking a much softer approach to policing London’s markets than that of other regulators, such as the US Securities and Exchange Commission.

Callum McCarthy, the chairman of the FSA, told the same hearing: “The City of London does not take market abuse seriously enough.”

Sally Dewar, head of the wholesale markets division at the Financial Services Authority, told the Financial Times the FSA had boosted its criminal prosecutor team to 30 people from 12 as it took a tougher line on enforcement.

“There is a strong pipeline coming in both civil and criminal cases,” she said. “We’ve taken a conscious decision to focus more on criminal cases.”

Ms Dewar acknowledged that successful prosecutions had proved hard to achieve but said “we feel the need to be bold”.

“As the cases develop, we’ve been pushing ourselves as to whether we can take more of these cases as criminal cases,” said Ms Dewar.

“What the market needs to recognise is that the burden of proof is extremely high. Some we are going to lose, some of them we are going to win – and we will have to take the rough with the smooth.”

Its first criminal prosecution for insider dealing was launched earlier this year, in a case against Christopher McQuoid, 39, and James William Melbourne, 74, who have been accused of trading ahead of a £103m offer by Motorola for TTP Communications in June 2006. Both have pleaded not guilty.

Ms Dewar, who took up her position in January and has not given a media interview until now, has made it clear the authority now intends to take a harder stance.

However, industry lawyers have said criminal cases would only really have a deterrent effect if the regulator netted some big City names.

“City professionals are our biggest focus and that is where we see we need to make the biggest impact,” said Ms Dewar, adding that she would not want people to assume that this meant the watchdog was ignoring everything else.

Insider dealing is notoriously hard to prove because much of the evidence on which prosecutors rely is circumstantial.

The regulator has always had both civil and criminal enforcement powers but, even though civil cases technically carry a lower burden of proof than criminal, the FSA has struggled to produce successful cases.

It is currently investigating share trading on March 17 after shares in HBOS, Britain’s biggest mortgage lender, and other banks suffered severe gyrations on the back of a series of market rumours.

There are fears the tales were deliberately spread.

The watchdog’s investigators have interviewed those who sold short that day – sold shares they did not own in the hope of profiting from the price fall before having to deliver the stock – and are scrutinising instant messages and other forms of communication to try to pinpoint the cause of the moves.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.