FSA ANNOUNCES SCOPE OF ENFORCEMENT PROCESSES REVIEW

3 Feb 2005 01:15 PM

John Tiner, chief executive of the Financial Services Authority, today announces the scope, form and timing of the promised review of the FSA's enforcement processes.

The review will be led by David Strachan, FSA director of retail firms and sector leader for insurance. It will consider:

The review will aim to draw upon expertise within the financial services sector, including practitioners and others with direct experience of the FSA's enforcement processes. It will not explore options that would require changes to the Financial Services and Markets Act 2000.

Speaking to a City audience this evening, John Tiner, will say:

“After three years of operating the existing arrangements for investigations and making enforcement decisions, and in the light of the Financial Services & Markets Tribunal’s recent judgment in the Legal & General case, a review of their effectiveness is timely.

“The review will be careful, thorough and wide-ranging, taking in every stage of the process. Work begins next week and we plan to announce the outcome in mid-July. Any significant changes proposed will, of course, be subject to consultation.”

David Strachan will report to a sub-committee of the FSA Board, which will co-opt as a member Tim Herrington, who took up his position as the new chairman of the Regulatory Decisions Committee on 1 February. The sub-committee will also be advised by Michael Brindle QC.

NOTES TO EDITORS

  1. The Terms of Reference of the review are attached as an appendix to this press release and published on the FSA website (www.fsa.gov.uk/pubs/other/review_enf.html).

  2. David Strachan is the FSA’s director of retail firms and sector leader for insurance. He took up these positions when the FSA's new management structure came into place in April 2004. In addition to his division's supervision of a diverse portfolio of medium sized retail firms, David leads on the delivery and implementation of the Tiner Review reforms that modernise the way in which insurance companies are regulated. David's previous role at the FSA was director of insurance firms, where he was responsible for regulating insurance firms, friendly societies and the Society of Lloyd’s. David joined the FSA on 1 June 1998 as head of market conduct and infrastructure in the then markets and exchanges division. In April 2001 he became director of deposit takers division, covering banks and building societies, credit unions and e-money issuers. His previous career was spent in the Bank of England, working both in banking supervision and in the market operations areas.

  3. Michael Brindle QC is a Barrister specialising in banking and financial services, professional negligence in financial and commercial matters, insurance, arbitration and international trade. He has experience in City-related matters including litigation arising out of audits, take-overs and rights issues. He was called to the Bar in 1975 and took Silk in 1992.

  4. During 2004, the FSA conducted a review of the enforcement referral, investigation and decision making process, known as the "end to end review" designed to identify process improvements. Speaking at a conference on enforcement in September 2004, John Tiner described the changes made as broadly falling into 6 categories; simplifying documentation, streamlining decision making, improving project management methodology and use of technology, better planning of investigations and formal interviews, encouraging earlier settlement of cases and more flexible use of preliminary findings letters. The review announced today will not duplicate the work of the end to end review. The full text of John Tiner's speech is available at www.fsa.gov.uk/pubs/speeches/sp193.htmland a summary of the end to end review is at www.fsa.gov.uk/enforcement/end_review.html.

  5. The Regulatory Decisions Committee and the Financial Services & Markets Tribunal

    Section 397 of the Financial Services & Markets Act 2000 (FSMA) requires the FSA’s investigative process to be separated from the decision-making process. After extensive consultation with the industry and others, the Regulatory Decisions Committee (RDC) was established as the relevant decision-making body. Its chairman is an employee of the FSA responsible directly to the FSA chairman and to the FSA Board. All other members are external to the FSA and represent the public interest.

    The RDC is as an administrative body which advises the FSA on regulatory decisions. It is not a judicial body and was not set up to act as a court or tribunal. It does not, for example, take evidence from a plaintiff or call witnesses for cross examination. In creating the RDC, the FSA sought to develop a decision-making procedure that was effective, fair and did not duplicate the function of the Financial Services & Markets Tribunal.

    The Financial Services and Markets Tribunal is an independent judicial body established under Section 132 of FSMA which hears references arising from decision notices issued by the FSA. The decision notices may cover a wide range of regulatory and disciplinary matters. The firm or the individual to whom the notice is directed has the right to refer the matter to the Tribunal. The Tribunal determines the appropriate action for the FSA to take. It hears cases de novo.

  6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

  7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve our business capability and effectiveness.

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    Website: www.fsa.gov.uk

    Appendix 1.

    Review of Enforcement Processes – Terms of Reference

    To review the use of, approach to and decision­making process for supervisory actions and enforcement actions to address breaches of regulatory requirements and, where appropriate, to make recommendations. The review will assess the lessons from the FSA’s experience of the last three years operating under the Financial Services & Markets Act 2000 (FSMA) regime including the comments of the Tribunal in the Legal and General case. It will not explore any options which would require changes to FSMA. The review will consider:

    • the processes followed by supervisors, enforcement staff and decision-makers when considering possible breaches of statutory or regulatory requirements, and the nature and extent of the communications and interactions between them;

    • the role and involvement of senior FSA management throughout these processes;

    • options for making regulatory decisions based on a fair procedure by persons separate from the investigators; and

    • the accountability of decision makers to the FSA Board.

    The review will be led by David Strachan (Director of Retail Firms Division and Insurance Sector Leader, FSA). He will report to a sub-committee of the Board comprising Callum McCarthy (Chairman, FSA), John Tiner (Chief Executive, FSA), James Crosby (Chief Executive, HBOS plc), Hugh Stevenson (Chairman, Equitas Ltd) and Clive Wilkinson (Chairman of the Birmingham & Solihull Heartlands NHS Trust), who will make recommendations to the Board. Tim Herrington, who took up his duties as the new Chairman of the FSA Regulatory Decisions Committee on 1 February, is co-opted to the sub-committee. The sub-committee will be advised by Michael Brindle QC.

    The conclusions of the Board will be made public in July and any changes to the FSA’s approach will be subject to consultation, as necessary.