Why Plea-Bargaining Powers Won't Help the FSA to Nail the HBOS Masterminds
Prosser, David, The Independent (London, England)
Any victims of the great HBOS short-selling sting who were expecting justice to be swiftly dispensed must be growing more disappointed by the day. It is now 10 days since the Financial Services Authority promised to hunt down the criminals who targeted the bank, yet dawn raids on the Mayfair haunts of the short-sellers widely thought to be the chief suspects have been conspicuous by their absence.
The Government's response to this failure should have been predictable for anyone familiar with the Home Office's thoughts on detention without trial. The answer, of course, in cases where the dock remains empty, is to offer investigators ever greater powers. So it was that Alistair Darling yesterday floated the idea of giving the FSA the option of offering plea-bargaining deals.
There's no doubt the FSA itself would like to be able to offer plea bargains. Last year, it said around a quarter of all takeover announcements were preceded by suspicious movements in the share prices of the companies involved - and that, in at least some of these cases, individuals were clearly breaching insider trading laws. Yet the regulator has never successfully brought an insider- dealing case to court. One reason for this failure, the FSA says, is that it has no carrots to dangle in front of low-level miscreants tempted to fess up.
The theory is beguilingly simple. If you can find a whistleblower low down in the chain of wrongdoing, persuading them to dish the dirt on links higher up should be easier if you can promise them immunity from prosecution or lesser charges.
In practice, however, the regulator must find a whistleblower in the first place, either by confronting them with proof of their wrongdoing, or by relying on them to tip you off out of the blue.
Instances of the latter are bound to occur from time to time, but anyone manning the phones at the FSA's version of Crimestoppers probably wants to have a decent book to hand. The former route to identifying whistleblowers is potentially more fruitful, but it depends on the kind of detective work at which City regulators do not so far appear to have excelled.
There are some reasons to be optimistic. The launch of a financial crime division within the FSA last year was an important step forward. The regulator also has increasingly sophisticated computer technology that can help it identify suspicious-looking trading patterns.
However, while the suggestion that the FSA might get plea- bargaining powers has lead to obvious comparisons with the SEC, the US regulator that uses these tactics as a matter of routine, the UK authority remains a very different type of watchdog. Most of the FSA's activities - and more than 90 per cent of its staff - are focused on supervision rather than enforcement. By contrast, around half the SEC's employees spend their time investigating and prosecuting criminal and civil cases.
This contrast may be no bad thing. While it is important to root out insider dealers and the kind of speculators that sent HBOS into a spin, policing the financial services sector, protecting its customers and above all preventing disasters such as the collapse of Northern Rock should be greater priorities.
There's little evidence to suggest plea-bargaining on its own will transform the FSA's abilities to nail financial criminals. Similar powers awarded to agencies such as the Serious Fraud Office a couple of years ago have not yet resulted in a notable increase in their success rates.
The case of HBOS, in particular, is unlikely to be solved by the emergence of a whistleblower. It is almost certain to have involved a small handful of individuals operating in ways that left no paper trail - none of these traders have any incentive to come forward.
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