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BoE to keep financial waters calm

The Bank of England has a tough road ahead after the Chancellor announced it will be responsible for financial stability, with the FSA in charge of tackling market abuse.

In his Mansion House address last week, Alistair Darling said the BoE would be given a legal responsibility for financial stability, on top of its existing role in setting interest rates.

He said: “A slimmed down court will have oversight and a new Financial Stability Committee, including non-executive members drawn from court, will guide the bank’s operations in this field.”

The Chancellor has also proposed changes to the BoE’s governance structures and may provide it with a range of tools to enable it to carry out its new responsibility,
including a leading role in the implementation of the new special resolution regime.

Darling’s proposals will be included in the Banking Reform bill, to be introduced later this year.

At the dinner, Darling also confirmed the FSA would be granted new powers to tackle market abuse.

He said: “It is important the FSA has the necessary powers to tackle market abuse and ensure investor confidence. The Government will be bringing forward legislation to provide the FSA with additional powers and we are already working with prosecutors to help the FSA improve its prosecution rate.”

Darling said the Government had faith in the tripartite system but it needed

He said: “The challenge for us is to ensure the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need. They do so by entrenching the model established a decade ago – the FSA
responsible for individual institutions, the BoE for the stability of the financial system as a whole – but by providing each with new powers and improving the coordination between them.”

As well as tackling market abuse, the FSA is focusing on criminal prosecutions as part of its enforcement activity.

FSA director of enforcement Margaret Cole told delegates at the FSA Financial Enforcement Conference that enforcement activity is at the forefront of its drive to achieve credible deterrence.

Cole said that the FSA is increasing its focus on bringing criminal prosecutions against those who fail to comply with the rules.

She said: “I should make clear that our aim is to clean up the market, to change behaviour by making best use of all the powers ­ criminal, civil and administrative ­ that are available to us. If people have to go to prison for us to achieve that aim then that¹s what we are prepared to do.”

Cole said the threat of civil fines has not worked well as a deterrent in the City and the regulator believes the threat of a custodial sentence is a more significant deterrent.

She said: “As I said when I appeared before the select committee, we intend to be bolder and more resolute about proceeding with market abuse and insider dealing cases so that we can actually bring about a change in the
culture in the City.”

Cole said the FSA will also be offering incentives to lesser participants in criminal activity to co-operate in building evidence against others.

And finally, the FSA is facing some tough questions itself over its new disclosure rules on short selling.

The Alternative Investment Management Association is calling on the FSA to release the findings of any investigations that led to the implementation of the new rules.

AIMA says it also wants clarification on issues that it believes are outstanding in the definitions, scope and implementation of the regime.

AIMA has queried the FSA on technical issues and is questioning its justification for the use of special powers under the Financial Services and Markets Act 2000 to take this measure without consultation.


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