UK's FSA Increases Enforcement Activities Against Insider Trading

by Robin Pilgrim, LawAndTax-News.com, London

05 June 2009

The UK's Financial Services Authority (FSA) has made considerable advances in strengthening the effectiveness of its enforcement division and made its first criminal prosecution in 2008. Since then the enforcement division has made its third set of arrests of alleged insider dealing rings and it expects to bring five new prosecutions before the end of 2009.

In late 2003, the FSA acquired powers under the Regulation of Investigatory Powers Act (RIPA) to access more easily communications data, information about the use people make of services such as the post, telephone or e-mail. However the FSA itself admitted that insider ­dealing may have taken place ahead of a quarter of all takeovers in 2005 – no less than in 2000, before the regulator received the new powers. The FSA also reported unusual and unexplained movements in share prices of companies ahead of almost a third of merger or takeover announcements in 2007.

Margaret Cole, director of enforcement at the Financial Services Authority, joined the FSA from White & Case, an American law firm, in 2005, and brought about major changes. About one third of her staff left, but she is now involved in a recruitment campaign that will increase the headcount to 340, involving high power personnel from the major law firms. The new entrants, criminal barristers, former Serious Fraud Office investigators and forensic specialists, will seek to make significant inroads against insider dealing, with more than 80 staff investigating 'wholesale' cases, that involve financial institutions and their employees. Technological advances in the fight against market abuse include the creation of the Digital Evidence Unit, a team of ten specialist investigators who forensically examine computers, BlackBerrys and other electronic devices seized from suspected insider dealers. Ms Cole has stated that, in one of the cases it was investigating, the FSA had obtained the names of 2,000 people who could have been privy to confidential market information.

It appears that, in future, more attention will be paid to bringing criminal prosecutions rather than regulatory fines. This addresses criticisms made of the FSA that it concentrated on easy targets and small time opportunists.

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