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Daily Telegraph: Former adviser slams watchdog’s ‘closed mind’ ahead of review

Daily Telegraph: Former adviser slams watchdog’s ‘closed mind’ ahead of review

“The regulator is expected to face further scrutiny of its procedures next week when the tribunal holds a preliminary hearing on whether the FSA should have given Sir Philip Watts, former chairman of oil giant Shell, an opportunity to respond before it published its damning findings into Shell’s oil reserves scandal last year. Shell was fined £17m.”

Monday 18 July 2005

By James Moore, Financial Correspondent (Filed: 18/07/2005)

One of the lawyers involved in creating the Financial Services Authority yesterday savaged the watchdog’s disciplinary system, saying that it had a “win at all costs mentality”.

Angela Hayes, now a partner with law firm Lawrence Graham, and formerly one of the team of lawyers who advised on how to implement key parts of the Financial Services and Markets Act that created the FSA, said the watchdog was set to duck an opportunity to bring in “root and branch” reform. The watchdog is preparing to announce the results of a wide ranging review of its disciplinary system.

The review was set up after the regulator was sharply criticised by the independent Financial Services & Markets Tribunal over the way insurer Legal & General was fined £1.1m for alleged widespread mis-selling of endowment mortgages. The tribunal found only limited mis-selling and halved the fine.

Prime Minister Tony Blair also recently criticised the regulator when he said the City watchdog was “seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone”.

FSA chairman Sir Callum McCarthy, who drafted a furious response to Mr Blair, asked FSA board member David Strachan to conduct the review in the wake of the tribunal’s criticism. However, Ms Hayes, who is one of a number of senior lawyers to have been involved in discussions with Mr Strachan through the Association of Regulatory and Disciplinary Lawyers, said there would be little real change.

She said: “The FSA has a ‘win at all costs’ mentality. Once a case is referred to enforcement they will keep digging for something regardless of whether there is anything there. It really does feel that they are approaching cases with closed minds, and that is not right for a process that is supposed to be fair.

“If there was a willingness to listen at the earliest stages, not just when a case reaches the Regulatory Decisions Committee, then the whole thing could be a lot more efficient.”

However, she said: “From our discussions, I don’t think that the mind set will change, whatever the FSA can say in terms of changing its procedures.

“The question that they should really be asking is whether firms that have compliance failings but admit to them and pay millions of pounds in compensation should still get big fines. John Tiner [FSA chief executive] has said one of the FSA objectives with fines is to attract publicity and adversely affect brand values.

Fair enough if you are dealing with genuine bad guys but should the FSA be doing this to companies who co-operate and therefore risk damaging the City’s reputation with the world, or should they instead be better targeting their activity at real miscreants.”

The FSA’s procedures are likely to change in the wake of the review, with reforms made to the Regulatory Decisions Committee, supposedly independent of enforcement teams but chaired by an FSA employee.

The regulator is expected to face further scrutiny of its procedures next week when the tribunal holds a preliminary hearing on whether the FSA should have given Sir Philip Watts, former chairman of oil giant Shell, an opportunity to respond before it published its damning findings into Shell’s oil reserves scandal last year. Shell was fined £17m.

The FSA has refused to make any comment on the review prior to publication tomorrow.

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