At the start of December, Jamie Symington (Head of Wholesale Enforcement at the FSA) gave a speech about challenging the culture of market behaviour. The speech covered a lot of different ground, looking at actions to date and the notion of credible deterrence, as well as at educational and thematic work.
For those looking to read the runes of future enforcement in the area of market abuse, a number of interesting comments were made:
- The number of STRs (suspicious transaction reports) continues to rise. There were 364 STRs in 2009 and he considered there would be over 900 in 2012. Whilst Jamie Symington stated that the increased number of STRs does not mean that there was more market abuse, in our view, the rise in reporting is likely to lead at least to a rise in FSA enforcement;
- The FSA considers that, with improved efficiencies, know-how and expertise, the number of "public outcomes" in the criminal and civil domains will continue to rise. In other words, they consider there will be increased successful enforcement action;
- Whilst we all know that the level of market abuse enforcement activity has been driven up since 2008, and that it has remained at sustained levels, Jamie Symington said that it was set to remain at such levels in the future;
- Substantial work has been done on high frequency trading, including visits to firms to test their systems and controls. This it seems has highlighted relatively poor systems and controls, and we shall have to see whether enforcement action comes out of such findings.
The FCA's proposed use of temporary product intervention rules
One of the new tools given to the FCA by the new Financial Services Act 2012 is the power to bring into force short term rules (which can last a maximum of 12 months) to quickly tackle specific sources of consumer detriment. The FCA will not have to consult before making these rules. It is therefore intended that such rules will (amongst other things) help the FCA to achieve its stated objectives of early product intervention.
The current consultation paper contains the proposed policy for the use of the temporary product intervention rules. Under the new legislative provisions, if it is to bring into force such a short term rule, the FCA must first consider that it is necessary or expedient to dispense with the requirement for consultation in order to advance the FCA's strategic objectives. The consultation makes it clear that it is not intended that these powers will be used regularly, but rather only in urgent situations. The FCA proposes that the main consideration will be whether prompt action is needed in order to reduce or prevent consumer detriment. Other proposed considerations will include the proportionality of the rules and whether they are likely to be beneficial to consumers as a whole.
There have been expressions of concern in the industry about the extent to which the new FCA will become the consumers' champion to the detriment of the industry. The new power outlined above has the scope to be used in a draconian manner. It remains to be seen both how the industry responds to this consultation and eventually how the powers will actually be used. Depending on how they are used it will be interesting to see if any aggrieved individuals or firms feel bold enough to mount a judicial review of the FCA' decision to pass such a rule.