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Senior management in investment banks face a greater chance of being prosecuted for maintaining weak defences against insider dealing, even in the absence of specific instances of market abuse, a senior lawyer has warned.
The Financial Services Authority has increased its rhetoric in the fight against insider dealing and market abuse over the past year. Last month it launched its first criminal prosecution, having previously relied on civil proceedings.
“I would expect one or two high-profile cases where there has been no market abuse trigger. There is a strong prospect of controls-based enforcement.”
The FSA was likely to use its Approved Persons regime to discipline executives for failing to do enough to maintain strong controls, he said. That meant senior managers faced difficult legal battles given that the regulatory principles involved were so general.
“It’s very hard to defend against any FSA accusations [in this area] ... ‘Are your controls adequate?’ is a very broad question,” he said.
A representative for the FSA said: “If we find significant system failings that would allow market abuse to take place, we will take action on the system and controls failings, even absent a specific instance of market abuse. We have made it clear that senior management must ultimately take responsibility for the systems and controls in the firms that they run. We ... will take action on that basis.”
But he said the FSA’s approach had not changed.
Last May, Sally Dewar, the FSA’s new head of wholesale markets, said tackling abuse had “to be a collaborative effort with the market”.
By Chris Hughes