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FSA pushes for tougher early warning powers

The FSA has called for the draft financial services bill to be changed so that the Financial Conduct Authority will not have to notify firms before publicising that they are the subject of ongoing enforcement investigations.

The Treasury published a consultation paper on the new regulatory framework in February which announced plans to legislate to allow the FCA to publicise warning notices against firms and individuals and the grounds on which action is being taken.

The draft financial services bill legislation published in June requires the FCA to consult the subject of the warning notice before issuing any publicity on the investigation.

The FSA has today  published a memorandum it submitted to the joint committee on the draft financial services bill.

It argues the requirement to consult the subject of early warning notices will “seriously undermine” the effectiveness of the new power because most, if not all, firms are likely to fight details of the warning notices being published.

The FSA says this will lead to firms and individuals seeking court injunctions to stop the nature of the investigation becoming public, which the FSA says is not in the public interest.

The FSA says: “Our strong preference therefore would be for the requirement to consult the subject of the notice to be removed from the bill. The effect would be to bring this provision into line with standard civil and criminal legal powers and would counter the suggestion that the regulatory process is disproportionately biased in favour of non-disclosure in the interests of financial services and industry practitioners.”

Financial services lawyers have already warned that early warning powers are dangerous as warning notices do not necessarily lead to enforcement action. Aifa believes the power marks a “worrying shift towards guilty until proven innocent”.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Blimey, for once I think that I might be agreeing with the FSA, at least in part.
    Maybe I should go and have a lie down!

  2. So not only are we guilty until proven innocent, we are now potentially to be denied the basic rule of law to prevent probable significant (if not terminal) reputational damage??
    All in the name of public protection – are we not members of the public?? What about our protection??
    It seems we have no more right to live on God’s earth than a weasel (quote: Edmund Blackadder)

  3. There is a story told of a Royal Navy destroyer being berthed alongside Harbour Steps in Malta some years ago in a more than cavalier fashion. Having rammed the ship ahead, the vessel went into full astern ramming the frigate behind before settling into it’s berth. All eyes went to the Admiral’s flagstaff, which instantly ran upthe signal for “Good.”
    Precisely one minute later a further signal was flown alongside the first. It simply said, “God”!

    This was precisely my reaction to this unbeleivable proposal.

    Not only are we to be denied access to legal counsel to defend ourselves from kangaroo court prosecution and (according to European Laws on Human Rights) illegally fined with no redress, but we are now presumed guilty before being proven innocent.

    In a LEGAL Court in this country, a Judge would take a very dim view (and many have) about any publication of defendant details before thecase is heard. There are laws preventing it. And many a case has been dropped because it was that truth had been compromised by such disclosure.

    Who do you sue after being found blameless of an accusation, when your business has collapsed because the clients have all left and the competition has moved in to fill the gap?

    Just who are the FSA/FCA employing to come up with this nonsense? Edward Lear? Lewis Carroll?

  4. Perhaps we are forgetting that there’s no smoke without fire. If you conduct your business compliantly, well & ethically, then you have nothing to fear, since the FSA/FCA will not need to conduct an investigation into you & it will never need to be publicised. Investigations only happen when foul play is suspected, and usually with good cause.
    Under the present regime, you could set up a contract with a firm in all good faith, only to find later down the line that they were subject to investigation and found guilty of some crime. Because of the current rules of disclosure, the firm under investigation can quite legitimately hold back the fact that the are under investigation. This new rule would change all that.
    I for one, like to know exactly who I’m dealing with, and welcome this move by the FSA.

  5. This is a difficult call, I can see this from both sides and my experience shows that some firms are hostile to regulation and a few are quite simply ripping people off for years before the regulators can get to the final hurdle whereby the firm is shut down. I have also seen regulators take a vindictive stance, if you give unlimited power to any human whether it is something like planning control or as is in your case FS regulation and it has the potential to be abused, for bias and prejudice to exist.

    At the moment I am looking at the activities of a firm which made it onto a TV programme that exposes shoddy service in 2005, the firm was paid a visit in 2010 and told to use an external compliance consutant! The partners were bankrupted in March 2011 yet the FSA only found out in July!!

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