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A case of looser lips at the City police station

Financial Times: A case of looser lips at the City police station

“By delaying its announcement of the Royal Dutch/ Shell investigation, the FSA scored an own goal, making it look a long way behind the SEC.”

By Martin Dickson

Published: August 20 2004

How loose-lipped should the Financial Services Authority be? Like regulators around the world, it has traditionally been sparing in letting the world know it is conducting investigations into potential wrongdoing.

But in the past few months it has become decidedly more forthcoming. Only this week it announced it had launched a formal inquiry into Citigroup’s unusual trading activity in the eurozone government bond market. It had previously revealed it was investigating trading in Marks and Spencer’s shares ahead of Philip Green’s announcement of a putative bid, and that it was looking into Royal Dutch/Shell’s oil reserving scandal.

Such revelations are still the exception rather than the rule, because the legislation under which the FSA was established, as well as common regulatory practice, demand that it should not normally make any public announcement until someone has been found guilty. To protect the accused, there should be a presumption of innocence during any investigation.

But the law contains loopholes for exceptional circumstances – where, for example, an announcement is in the interests of consumer protection.

On each of the recent occasions it has revealed investigations, the FSA has simply been using a degree of common sense. All three have been into matters already the subject of keen public debate – and in the case of Shell, where a probe by the US Securities and Exchange Commission was already known to be under way. The FSA should have been investigating, and for it not to have made an announcement could have diminished market confidence in the regulator.

Such transparency can clearly go some way further, and the FSA seems keen to do so. There seems no reason why it should not routinely announce the start of formal investigations into dealings around sharp share price movements or any other matter of large market confidence that is in the public eye. But any announcement needs to be timely. By delaying its announcement of the Royal Dutch/ Shell investigation, the FSA scored an own goal, making it look a long way behind the SEC.

However, there is a delicate balance to be struck between consumer protection and market confidence on one hand, and the rights of the accused on the other. Above all, the FSA will need to guard against actions that serve merely to portray it in a positive light, while prejudicing the case against its targets.

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