The Wall Street Journal: U.K. Regulator Weighs Becoming More Public

FSA Considers Announcing

Inquiries Amid Concerns

It Is Slow to Take Action

By SILVIA ASCARELLI

Staff Reporter of THE WALL STREET JOURNAL

May 17, 2004

LONDON -- Concerned that investors may think it is slow to pursue wrongdoing, the U.K.'s traditionally tight-lipped financial regulator is debating whether to be more public about its inquiries.

Such concerns prompted last month's unusual decision by the Financial Services Authority to announce it is indeed investigating Anglo-Dutch oil company Royal Dutch/Shell Group over recent disclosures surrounding its reserve levels.

Regulators, including the U.S. Securities and Exchange Commission, are rarely so public, leaving it to companies to make the announcement on matters the companies deem to be significant to investors. Indeed, Shell, not the SEC, disclosed both an informal U.S. regulatory inquiry and its upgrade to a formal investigation. The company has since said it is also cooperating with the FSA investigation but, unlike with the SEC inquiry, the company didn't issue its own news release.

At the FSA, the internal debate centers on balancing concerns about consumer protection and ensuring market confidence in the regulator -- which would suggest greater disclosure -- against the potential damage to the reputation of individual or company targeted, said Andrew Procter, the agency's head of enforcement. Traditionally, regulators have favored protecting reputations, arguing there is a presumption of innocence.

It isn't yet clear what decision the FSA will reach. One sensitive area could be the extent to which it may comment on issues that haven't been made public. Shell's internal debate over its reserves policy already had generated headlines. Should the FSA decide to become more public about investigations, it would consult market participants about the practicalities during the second half of the year.

The FSA, like other European regulators, doesn't automatically characterize investigations as a "material" event that companies must disclose. One reason is that it isn't always clear from the start what the likely outcome of that inquiry will be. As that becomes clearer, companies do disclose the FSA's interest, Mr. Procter said.

"It's not a black-and-white issue, and companies are making judgments about those issues as the cases progress," he said.

That companies opt to disclose SEC investigations more readily "has more to do with their own perception of the obligations under exchange rules and the risk of shareholder action," he said.

A Shell spokesman said the company "regards and respects the authority of each of the respective national regulators equally, without considering any more important than the others."

The FSA disclosed its inquiry more than a month after the SEC had launched its formal probe, potentially make it a less "material" event for investors.

But the U.K. regulator had been speaking with the company and other regulators, Mr. Procter said. "We were not in any sense behind the game" but the agency considered it "not acceptable" for market confidence that there be any questions about its doings on a prominent case.

Write to Silvia Ascarelli at silvia.ascarelli@wsj.com