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The Times: Don't blame us if we fail to hook big fish, says regulator

By Patrick Hosking
Our correspondent talks to the FSA man who had the case against Shell’s former chief executive dropped.
THE man who ordered the dropping of the market abuse case against Sir Philip Watts, the former Shell chief, has rejected accusations that the City watchdog is failing in not hooking the big fish.
Tim Herrington, chairman of the Financial Services Authority’s powerful Regulatory Decisions Committee (RDC) and chairman of the RDC sub-panel that heard Sir Philip’s case, declined to comment directly on the case, but said that it was hard to pin blame on individuals in big companies.
“Getting big individuals is difficult,” he told The Times. “They fight hard, as you’d expect. When you’re operating in a corporate environment, it’s actually quite hard to pin things on an individual, as distinct from a corporate failing.
“Philosophically and legally, it’s very difficult to do. But that doesn’t mean you don’t try.”
Both the culture of large organisations and the legal system made it hard to pinpoint responsibility, Mr Herrington said. “You can’t just say that because a firm has failed, an individual must be to blame. That’s a very kneejerk reaction.” He drew a parallel between corporate disasters and the difficulty of finding individual directors guilty of manslaughter.
The regulatory world was stunned last November when the FSA announced that it was abandoning the case against Sir Philip. Earlier it had found Shell guilty of serious market abuse and had fined it £17 million for repeatedly misleading shareholders over the level of its oil and gas reserves.
The FSA appeared to be determined to pursue Sir Philip after it won a hard-fought skirmish against him in the Financial Services & Markets Tribunal in September.
It also appeared to have strong evidence in the form of e-mails between senior executives, including the notorious admission from Walter van de Vijver, the former exploration director, that he was “becoming sick and tired about lying” about reserves issues.
Mr Herrington, who was hired to head the RDC last February, denied that the decision had soured relations between the committee and the FSA’s enforcement division, which spent 18 months building up a detailed case against Sir Philip and at least one other Shell executive. He had “a full and frank exchange of views from time to time” with Margaret Cole, the division’s chief, but said that “in practice we’re very much a team”.
Mr Herrington was speaking as the RDC considers the case of Philippe Jabre, a multimillionaire GLG Partners hedge fund manager accused of insider dealing. The case is considered key after the FSA made its crackdown on market abuse by hedge funds a priority last year.
Mr Herrington, 51, who spent his career at Clifford Chance before joining the FSA, said that the RDC was working well in the wake of the Strachan shake-up — reforms put in place after the controversial Legal & General case. The RDC was now fairer to the accused and seen to be fairer, he said. It was more distanced from Enforcement and the judgment process was more transparent.
The extra cost was about £250,000 for the RDC’s new separate legal team. The extra time taken to judge cases probably averaged three weeks.
Far fewer cases were reaching the RDC, Mr Herrington said, with seven or eight out of ten settled with Enforcement. The RDC at present was considering three major cases, he said, as well as several smaller ones.
He defended the FSA against suggestions that it was failing to discipline senior executives, saying that it was no worse than regulators elsewhere. “I can’t think of any big fish in Europe who’s been caught. Even in the States, is it really that common?”
Biggest fines imposed by the FSA
Shell: Reserves mis-statements £17 million
Citigroup: “Dr Evil” bond scandal £13.9 million
CSFB: Misleading Japanese regulators £4 million
Abbey: Money-laundering rule breaches £2.32 million
Lloyds TSB: Precipice bond mis-selling £1.9 million

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