The FSA, “credible deterrence”, and criminal enforcement – a “haphazard pursuit”?
| Date | 20 December 2013 |
| DOI | https://doi.org/10.1108/JFC-02-2013-0007 |
| Pages | 4-28 |
| Published date | 20 December 2013 |
| Author | Gary Wilson,Sarah Wilson |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
The FSA, “credible deterrence”,
and criminal enforcement –
a “haphazard pursuit”?
Gary Wilson
Nottingham Law School, Nottingham Trent University,
Nottingham, UK, and
Sarah Wilson
York Law School, University of York, York, UK
Abstract
Purpose – Located within growing scholarly interest in linking the global financial crisis with
revelationsof financial crime, this piece utilises Roman Tomasic’s suggestion that the financial crisis has
marked something of a turning point in regulatory responses to financial crime worldwide. Tomasic
attributesthis to changing attitudes towards light-touch regulation and risk assessment,and the demand
for existing agenciesto be replaced with new tougher authorities.In the UK, this can be illustratedby the
imminent replacement of the FSA with the Financial Conduct Authority (FCA). The paper aims to
discuss these issues.
Design/methodology/approach – Discussion of the FSA’s financial crime fighting activity is an
important forecast for the likely directional focus of the FCA in this regard. A focus only on “market
abuse” enforcement within this arises on account of the effects for financial systems widely attributed
to this activity, with threats to systemic stability being a hallmark of the 2007-2008 financial crisis.
This methodology also encourages coherence in focus and management of sources within the article.
Market abuse enforcement provides a lens for exploring the FSA’s adoption of the philosophy and
ethos of “credible deterrence”, and FCA commitment to retain it, and ultimately for applying the
hypothesis of the “haphazard pursuit of financial crime” to pre-crisis criminal enforcement relating to
financial crime undertaken by the FSA.
Findings – The FSA and FCA appear acutely aware that the financial crisis has marked
something of a turning point for the enforcement of financial crime, and for signalling changes in
approach, for the reasons explored by Tomasic. Tomasic correctly identifies factors encouraging a
range of undesirable practices pre-crisis, and ones signalling tougher and more sustained attention
being paid to financial crime henceforth. It is noted that, pre-crisis, the FSA’s pursuit of criminal
enforcement of market abuse was conscious, comprehensively resourced, well publicised, and actually
extensive.
Originality/value – This exploration of the FSA’s criminal enforcement of market abuse given the
Authority’s own perceptions that it was not, and could never be, a “mainstream” criminal prosecutor
considers the likely lasting legacy of this determined pursuit, when domestic politics and
pan-European policies suggested against this. This is likely to be enormously valuable as the FCA
undertakes this task in a domestic arena which is markedly in contrast from this, and where European
agendas are pushing in favour of criminal enforcement, with the “more Europe, or less” debate
providing a further dimension of interest.
Keywords Market abuse, Financial crisis, Financialcrime, Enforcement, Financial regulation
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Journal of Financial Crime
Vol. 21 No. 1, 2014
pp. 4-28
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-02-2013-0007
JFC
21,1
4
1. Introduction
[...] [w]e intend to be bolder and more resolute about proceeding with market abuse and
insider dealing cases so that we can actually bring about a change in the culture of the City
[...] (Cole, 2008).
It is not for us to say whether any particular agency, along with the offences created to
support its regulatory activities, are unnecessary. However, it is important to point out that
the offences created to support the activities of regulatory agencies are often rarely used [...]
(Law Commission, 2010, para. 1.25).
It is widely acknowledged that the aftermath of the global financial crisis – termed by
former Prime Minister Gordon Brown in 2010 as the “first crisis of globalisation”
(Brown, 2010) – is set to put in place a new regulatory landscape[1]. In furtherance of
this, new “regulatory conversations” are occurring both at national level within many
individual nation states – both within the much troubled Eurozone and outwith; and also
beyond this on Pan-European and international platforms. Much of this “spotlight” is on
banking specifically within financial sector activity. This is so on account of continuing
concerns about regulating so-called systemically important financial institutions
(SIFIs)[2] – where ongoing anxiety is being tracked by a number of exposure s of
impropriety[3]. More generally, and for a long time into the future, the crisis is likely to be
associated with its systematic exposure of “unethical” behaviour (O’Brien, 2012,
pp. 178-179). Widely perceived as the failure of light-touch regulation and risk
assessment (Tomasic, 2011, p. 7)[4], for some the financial crisis is also likely to mark a
turning point for responding to “financial crime” (Tomasic, 2011, p. 7). This is so on
account of exposure of conduct occurring during the crisis which is being regard ed as
potentially criminal behaviour, and which will ensure that the crisis is also likely to carry
longstanding associations with the revelation of “massive financial fraud”
(Tomasic, 2011, p. 7). The latter suggestion forms a central plank for the hypothesis
of the “haphazard pursuit of financial crime” (Tomasic, 2011, p. 7).
This paper explores some domestic dimensions of the hypothesis of the “haphazard
pursuit of financial crime”. This was proposed by Tomasic (2011, p. 8) as a lament on
the lack of development of “criminal sanctions applicable to corporate financial
misconduct”, and the concomitant under-utilisation of such sanctions in the context of
financial failure. For this paper this construct has been appropriated to consider the
pursuit of financial crime by the UK regulator put in place in 2000, the Financial
Services Authority (hereafter referenced as the FSA, or the Authority).
In acknowledging that the financial crisis has already revealed a considerable
amount of financial crime (Tomasic, 2011, pp. 7-8), and that such exposures are likely
to continue for a time yet, it considers the hypothesis of “haphazard pursuit of financial
crime” as one for exploring more generally criminal enforcement work carried out by
the Authority. The FSA is of course being disbanded on account of changes introduced
in the Financial Services Act 2012, and its replacement with the Financial Conduct
Authority (FCA) is imminent on account of the “twin peaks” regime introduced by
the 2012 Act[5]. The article is in any case most interested in the FSA’s financial crime
enforcement activities, flowing from its statutory remit as the body which until the
financial crisis enjoyed jurisdiction over “virtually everything financial in the UK”
(Omoyele, 2006, p. 194). This requires paying attention to FSA enforcement beyond its
responses to activity directly and indeed causally related to the crisis. In taking these
Haphazard
pursuit
5
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