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Lawyers warn shifting crime powers could hamper prosecutions

Lawyers are critical of a proposed move to transfer financial services enforcement from the Financial Conduct Authority to a new Home Office agency, saying that it will hamper effective prosecutions and add regulatory uncertainty.

Leaked documents reveal that the Home Office is considering moving responsibility for pursuing cases such as insider dealing and financial crime from the regulator to a new National Crime Agency which will take over from the Serious Organised Crime Agency in 2013.

The Treasury said last July that it would consider transferring responsibility for prosecuting offences such as insider dealing to a new Economic Crime Agency. By February this year, the Treasury had decided to transfer the FSA’s criminal enforcement powers to the new FCA but said it remained committed to developing the ECA, with plans to consult on proposals in the spring.

Market abuse cases such as insider dealing tend to be criminal cases but some cases are brought using powers under the Financial Services and Markets Act.
Dundas & Wilson partner Patrick Brandt thinks this may be the motivation for the transfer of enforcement powers to the Home Office, with the FCA responsible for investigating breaches of regulatory rules and the Home Office respon- sible for prosecuting in criminal cases.

Brandt says: “I would have thought the body effectively looking to monitor for market abuse would be better placed as the ones to prosecute. If the FCA is the market regulator, it will have the information and the ability to develop expertise in looking at market abuse.”

Pinsent Masons head of its financial services regulatory team Tim Dolan, who also used to work in the FSA’s enforcement division, says: “Let us be quite clear. At the moment, FSA enforcement does not deal with every case that it should. It is very focused on how it spends its energy. But it does achieve a lot in terms of sending messages to the market.

“The priority often is not to scare people but to educate them. I am worried that if enforcement was moved to a separate body that the ability to educate through intelligent enforcement action and send intelligent messages to the market would be lost.”

4 Pump Court barrister Peter Hamilton says it makes sense for enforcement to stay with the regulator, given the strides that the FSA has been making on pursuing insider dealing cases under the leadership of former FSA enforcement director Margaret Cole. She is acting as interim head of the Conduct Business Unit until Martin Wheatley takes on the role on September 1.

Hamilton believes financial crime will become less of a priority if enforcement is fol- ded into the NCA. He says: “I do not think this is a sensible move. The competition for resources will mean that priorities will switch from white collar crime to more high-profile cases such as counter-terrorism and drug rings. This seems like change for change’s sake.”

Beachcroft partner Daniel Preddy is unclear about what is driving the Home Office proposals. He says: “I cannot work out whether this is simply a case of jockeying for position within the Government. I would be surprised if it went ahead.”

Preddy believes opening up the debate about enforcement responsibility will only serve to create more uncertainty among FSA staff. He adds: “The FSA is losing people pretty rapidly at the moment anyway because of the change to the new regulatory structure. There must be a risk that the FSA will lose further people from enforcement if it is felt that the authority and power of the enforcement division is being diminished or is uncertain.”

A Home Office spokesman says: “The Government is determined to give greater focus to tackling both serious and economic crime. We are looking at whether current tools and powers for tackling this are adequate and are considering new structures in close conjunction with work to establish the NCA. No decisions have been taken.”


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