The Financial Conduct Authority has seen a 75 per cent increase in the number of investigations it has started in the wholesale market.
The regulator’s executive director of enforcement has said one of the reasons for this is the fall-out from the HBoS report.
Speaking to the AFME European Compliance and Legal Conference today (20 September), Mark Steward said the HBoS report found the Financial Services Authority did not launch an investigation into the bank because it formed a view that such a probe would not be successful.
Andrew Green, the author of the report, said this was misguided given the public interest at stake in the failure of HBoS.
Mr Steward said: “While there is little doubt that ‘prospects of success’ is an important element in considering whether enforcement resources should be deployed, I think it must be right that the merits of a case cannot be assessed before you have the relevant evidence, or even the key evidence.
"This is a real horse before cart issue.
“Andrew’s views have prompted some thinking around what should be the starting point for an investigation.”
Mr Steward said the legislation which the FCA operates under creates very low thresholds for starting an investigation in order to give the regulator wide discretion.
But he said: “The low threshold does not mean we should always act when there is not much to go on.
“We need to act reasonably, fairly and proportionately and, as we said in our recently published Mission, we should act, diagnostically and remedially where we see harm or risk of harm in the context of our overall strategic objective to ensure our markets function well.
“Putting this into the specific context of an investigation, this means we should investigate where we suspect serious misconduct may have occurred.
“I certainly don’t think the bar can be any lower nor should we limit our discretion given the infinite set of circumstances we may need to contend with.”
The other two reasons for the large increase in the number of investigations, Mr Steward said, was because of more probes taking place into capital market disclosure issues and legislative changes under the Market Abuse Regime which extended the regime’s scope.
Mike Pendergast, a financial adviser with Cheshire-based Zen Financial Services, said: "Obviously if there is any misconduct it needs to be investigated.
"I appreciate there is a cost involved but I don't see how they could know whether an investigation will be successful or not until they investigate."
damian.fantato@ft.com
