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FSA chief pledges to ‘make an example’ of groups breaching rules

Financial Times: FSA chief pledges to ‘make an example’ of groups breaching rules

“He indicated that the record £17m fine imposed on Royal Dutch/Shell for overstating its oil reserves set a new benchmark for the level of fines that would be levied on leading companies that failed to discharge their responsibilities to investors.”

By Krishna Guha

Published: September 20 2004

The Financial Services Authority will “make an example” of companies and individuals that breach its regulations, its chairman has warned.

Signalling there would be no let-up in the crackdown on market abuse, Callum McCarthy said making examples of wrongdoers was the only way to get the regulator’s message across and change corporate behaviour.

He indicated that the record £17m fine imposed on Royal Dutch/Shell for overstating its oil reserves set a new benchmark for the level of fines that would be levied on leading companies that failed to discharge their responsibilities to investors.

In an interview published this month, the FSA chairman tells The Financial Regulator, a trade magazine, that “management at all levels needs to be sensitised to the problem” of conflicts of interest inherent in the financial world. “Our task is to ensure that the message associated with any enforcement action gets across with sufficient clarity.”

Providing a case was serious, had been examined properly, and the alleged wrongdoers had had opportunity to explain their actions, “then it should be possible to make an example of them”.

Mr McCarthy went on to say the FSA was “keen to speed up the enforcement process” to make sure misbehaviour was swiftly identified and punished.

The interview was conducted before the latest legal challenges against the FSA by Sir Philip Watts, former chairman of Royal Dutch/ Shell, and Legal & General – which many in the City see as part of a broader backlash against the FSA’s get-tough policy. But it provides a clear insight into the FSA’s thinking and attitude going into these battles.

Mr McCarthy said “we want to change behaviour” and the only way to do this was to hold people to account for their actions.

However, he said the overall message would not get across if the FSA was seen to be dealing with a new case every day. So it had to be selective and focus on a few high profile cases.

He said that the biggest problem with financial services was not lack of competition but the shortage of information savers and investors could understand. “At the moment I do not think the industry does this well.”

He highlighted the need – given the boom in house prices – for people to “understand the difference between borrowing in a low inflation as opposed to a high-inflation environment.”

Mr McCarthy said that the FSA believed it had “a very strong case against certain individuals” for collusion in the split-capital trusts scandal.

However, he defended the FSA’s decision to consider settling the case, saying that it would otherwise take “a great deal of time for victims to get any consolation or compensation”.

Mr McCarthy said that the recent Citigroup bond coup raised “important issues” with regard to developing markets that were “efficient, orderly and clean” and added that if he were a finance minister from a nation issuing the bonds, he would “take a very dim view of it”.

The FSA chairman also criticised the heavy and lumpy flow of regulation from Brussels, saying “we face two terrible peaks of implementation over the next three years” which placed “unreasonable pressures on both regulators and on the industry.”

He called for transitional arrangements to smooth the burden.

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