FSA Embraces US-Style Approach to Tackle Fraud; but Regulator's Toughened Stance Unlikely to End Insider Dealing

Article excerpt

Byline: andrew farr

THERE must have been times over the past couple of years when many of us have wondered why it is that the authorities in the US appear to have taken such a hard line with errant bankers while the majority of those on this side of the water who had the finger pointed at them were allowed to retire, usually well-remunerated into the process.

In fact, a perceived public failure to bring to book any of those whoo led this country into its worst recession since the 1930s resulted in public unrest, with former RBS chief Sir Fred Goodwin forced into hiding after his property was attacked and vandalised.

However, the Securities and Exchanges Commission - Wall Street's policeman - often has just as hard a time bringing banking chiefs to book. Dick Fuld, the former head of Lehman Brothers, whose 2008 collapse triggered worldwide market meltdown, received grand jury subpoenas to three criminal investigations into securities fraud soon after the investment bank filed for bankruptcy.

But he was able to sell his multi-million-dollar Florida mansion for just $100 to his wife in a move many believed would protect it from any legal action, and in April last year he went back to work, with a New York hedge fund.

Nevertheless, the Financial Services Authority, appointed to the same role as the SEC here in the UK, has secured just five jail terms for insider dealing in nearly a decade in operation, even though it oversees one of the biggest financial markets in the world.

The financial crisis prompted the FSA into a fundamental change in its approach a couple of years ago, making it more willing to prosecute cases and currently has four concerning insider trading on its books. But the complexity of fraud and market abuse cases means that they take longer than other prosecutions to bring to court.

For example, seven people were recently charged in the UK with insider dealing. It followed a 21-month probe involving reading through 200,000 electronic files and 250 witness statements. The FSA began life content to allow firms to police themselves while the SEC has preferred an enforcement-led approach. But its so-called "light touch" supervisory regime was discredited once the Government was forced to step in and shore up the financial system with bank nationalisation. Perhaps as a consequence, it now appears far more willing to use criminal rather than civil sanctions to deal with cases that come before it. …