FINANCIAL TIMES: City policeman's lot is not a happy one: “…the regulator swiftly completed high-profile investigations such as last year's review of insider dealing allegations at Marks and Spencer and Royal Dutch/Shell's reserves debacle.” (ShellNews.net) 10 Jan 05
Published: January 10 2005
The departure of Andrew Procter as head of enforcement from the Financial Services Authority leaves a big gap at the City's chief regulator. Mr Procter's move to Deutsche Bank comes at a critical time for the regulator. It is struggling to rebuild its reputation after the controversial compromise on split capital investment trusts. It is also awaiting the verdict of an appeal by Legal & General over the FSA's handling of an inquiry into endowment mis-selling. Both cases have called into question the effectiveness of the FSA's enforcement processes.
Mr Procter is credited with introducing some much-needed changes into the FSA's bureaucratic procedures for policing the City. He has speeded up investigations from an average of 16 months to 11 months and was working on streamlining the process even further. Under him, the regulator swiftly completed high-profile investigations such as last year's review of insider dealing allegations at Marks and Spencer and Royal Dutch/ Shell's reserves debacle.
What is more, Mr Procter has dramatically reduced the number of open cases - from 600 just before he started in 2001 to 170. He has done this by targeting the FSA's resources more effectively at key areas such as market abuse and misleading financial promotions.
This is part of an overall FSA initiative to reduce red tape, cut down on regulatory box-ticking and find market-based solutions. The regulator needs to train its big guns on far-reaching City scandals, not tie up its staff in numerous policy initiatives.
A poll late last year by the Financial Services Practitioners' Panel - a body providing consultation on FSA policy - suggests there is still some way to go in reducing the City's regulatory overload. A high proportion of respondents - 58 per cent of small firms and 35 per cent of larger ones - said the cost of regulation was more than 10 per cent of their overall costs. Companies surveyed also complained about the lack of expertise among the FSA's staff.
The FSA is trying to attract graduates to start a City career at the regulator as well as more experienced industry practitioners to do a stint. This should help improve the calibre of its personnel, but only slowly. It badly needs a few high-profile City hires like that of Hector Sants, managing director of wholesale markets, who joined from Credit Suisse First Boston.
Over the longer term, the FSA's opaque enforcement process needs reform. Under today's rules, set by the Financial Services and Markets Act, the FSA is judge and jury, and the appeals process has yet to prove effective. Unfortunately, the government's recent review of the FSMA ducked this issue.
The verdict in the L&G case, due next week, will provide an insight into the FSA's enforcement procedure. If the regulator loses this case, Mr Procter's successor could be embarking on an overhaul sooner than expected.
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