Financial Times: UK watchdog drills at Shell

Published: April 26 2004 5:00 | Last Updated: April 26 2004 5:00

The announcement late on Friday that the Financial Services Authority had begun an investigation into Shell was welcome - but long overdue. The US Securities and Exchange Commission has been probing why Shell was forced to cut its proved oil and gas reserves by 20 per cent since February.

In its announcement, the UK's chief financial regulator said that it had already been conducting inquiries "for some weeks". However, it is the US authorities, including the Department of Justice, that have made all the running. It was they who terrified the group's directors last month into ousting Sir Philip Watts, their chairman, and Walter van de Vijver, former head of the exploration and production division.

This is not good enough. The main listing of Shell's UK arm, Shell Transport & Trading, is in London while the Dutch arm, Royal Dutch Petroleum, has its primary listing in Amsterdam. About 80 per cent of the group's shares are held by European investors and they should not have to rely on regulators in the US, where the group has a secondary listing.

There is a good reason why we have the Americans to thank for sounding the alarm: the rules about how Shell accounts for its oil and gas reserves are the SEC's, not the FSA's. Whether the UK market, which includes two of the world's largest oil producers, should have similar rules of its own is an important question for the future. However, from the moment that Shell admitted, on January 9, that it had got its numbers badly wrong it was clear that it had questions to answer under existing UK listing rules and the FSA's market-abuse regime.

One might well ask where the Dutch regulators have been all this time, too, but London is Europe's leading financial centre and its watchdog is the most sophisticated. Each year the FSA invites regulators from around the world to its headquarters to witness how good regulation is done.

Its slowness off the mark is particularly disappointing after the promises of its new leadership - Callum McCarthy, chairman, John Tiner, chief executive, and Andrew Procter, head of enforcement. With powers sometimes greater than those of the police, the FSA's chiefs set out to enforce its rules quickly and visibly.

They reacted decisively to the market-timing scandal, where investors exploited stale prices of funds across time zones to the detriment of other investors in the fund. But on this issue the FSA was simply checking whether practices already unearthed by US regulators were occurring in London.

Shell, then, is the first big test for the new team at the FSA. So far their reaction has reinforced the impression - encouraged by the fact that the SEC was also the first to sound the alarm at Parmalat - that European regulators only really get going when their American counterparts have already shown them the way.