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Zero hour as FSA chief gets tougher on enforcement

New director of enforcement Margaret Cole brings in an era of zero tolerance and says fines need to be increased

New FSA director of enforcement Margaret Cole has pled-ged to impose stricter fines on firms and usher in an era of zero tolerance for rule- breakers following the regulator’s enforcement review.

Speaking at the FSA’s forum at the Securities and Investment Institute compliance conference in London last week, her first major speech since taking over the role late last year, Cole said she wanted to end the feeling among firms that fines are just another cost of doing business.

She said that, where necessary, fines needed to be inc-reased to act as a deterrent to wrongdoers and that the regulator expected firms to promote a culture of zero tolerance of regulatory wrongdoing.

Cole has presided over a review of enforcement pro- cesses to make them more transparent following the financial services and markets tribunal’s damning verdict of its handling of the Legal & Gen- eral endowment misselling case last year.

Radical changes have been made in the enforcement division to reflect some of the key recommendations of the FSA’s review, published last summer.

Links between the FSA’s enforcement division and the regulatory decisions committee have been cut to address concerns of bias and inconsistency in decision-making.

Regular discussions will take place between the two groups and the details will be made available to firms under investigation.

The practice of sending out preliminary investigation rep-orts before cases are taken to the RDC has also been stand-ardised. Legal reviews are now carried out on all cases before the RDC stage by lawyers not involved with the investig- ation team.

But the enforcement divi-sion has already been criti- cised by consumer watchdog Which?, which argues that it was too lenient on Aegon-owned Guardian Assurance and Guardian Linked Life Assurance after the companies were fined £750,000 for serious flaws in their mortgage end- owment complaint-handling procedures.

This is the second-biggest fine imposed by the FSA for endowment complaints.

Cole said: “It is not good enough for firms to give individuals the equivalent of a slap on the hand. We expect firms to foster a culture of zero tolerance of regulatory wrong-doing. We will seek to ensure that the sanctions we impose, including financial penalties, are fixed at levels that are sufficient to deter potential wrongdoers and, where necessary, we will increase penalties to achieve this.

“In appropriate cases, we will seek to impose higher financial penalties. This will reflect the gravity with which we view market misconduct, where the regulatory requirements have been clear for some time.”

The Consulting Consortium managing director Joanne Smith says: “This is good news. The FSA has only imposed £10m of fines over the last two years. This is not a lot of money given the amount that is wrong in the industry and the money spent on regulation. There are some firms who think, ‘we can spend a whole lot of money getting our systems right or we can just pay a fine.'”


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