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Financial Times: Case of ex-Shell chief could make life complicated for FSA

Financial Times: Case of ex-Shell chief could make life complicated for FSA

Thursday 28 July 2005

By Barney Jopson

Published: July 28 2005

The Financial Services Authority and headstrong business executives do not mix. Following a clash with Sir David Prosser, chief executive of Legal & General, at a tribunal earlier this year, the FSA this week crossed swords in the same place with Sir Philip Watts, former chairman of Royal Dutch Shell.

L&G’s criticism of a mis-selling case against it triggered an overhaul of FSA enforcement procedures announced last week. Sir Philip’s action has the potential to prompt even more change at the regulator.

At issue is the way the FSA handles cases of suspected wrongdoing that involve parallel investigations into both a company and its executives and can affect the reputations of all concerned.

The Shell case highlights a regulator’s conundrum, says David Scott, partner at Freshfields Bruckhaus Deringer, the law firm. “There is a tension between the rights under statute [of those being investigated] and the FSA’s enforcement desire to deal with cases as quickly as they can.”

Sir Philip’s beef stems from the FSA’s decision to fine Royal Dutch Shell £17m last August for overstating its oil and gas reserves between 1998 and 2003, when he served in several senior executive roles.

The FSA is investigating separately the conduct of Sir Philip, who resigned last March, but has never had charges brought against him. He says the regulator’s findings were flawed and this week called on it to give him a chance to clear his name.

The former chairman was not named in the FSA’s final penalty notice against Shell, but his lawyers said at a one-day hearing on Monday he was “identified and prejudiced” because informed observers knew he had been a senior executive.

People identified in decision notices have the right to challenge them before they are published. However, in this case the FSA did not provide Sir Philip with a copy.

The FSA retorted that those “third party” rights had never been engaged. “There is simply no reference to, or singling out of, any individual at all,” says a document from the regulator’s lawyers. “All criticisms are made at the level of corporate personality.”

The tribunal closed after Monday’s hearing to make its decision, but it is not clear when that will be announced. If the FSA wins, it will be able to continue enforcement work against companies and individuals at different speeds – subject to reforms unveiled last week to improve transparency and fairness.

But if Sir Philip is victorious, FSA disciplinary proceedings could become more complicated with many decision notices sent to several parties for checking.

Robert Turner, partner at Simmons & Simmons, the law firm, says the FSA would face the choice of a drawn-out enforcement process or reaching a quick public resolution without pursuing people.

“There is some pressure on the FSA to hold individuals to account. There has been a lot of talk about doing so, but little to show for it,” he says. “If Sir Philip wins, doing [that] is going to be a problem.”

A victory for Sir Philip could also be a source of concern for companies. To help consign its troubles to the past, Shell chose to settle with the FSA last year without admitting or denying the regulator’s findings.

But Neil Mirchandani, partner at Lovells notes that Sir Philip’s action has revived memories of the case. “There is a dichotomy between companies wanting to make a clean break and the interests of legacy management who want to defend their reputations,” he says.

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