FSA will take tougher stance on inside dealing

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 over the past year.

Last month it launched it first criminal prosecution, having previously relied on civil proceedings.

Jonathan Marsh, deputy chairman of the legal committee of the Futures and Options Association and a partner at Berwin Leighton Paisner, said the regulator’s clampdown on insider dealing this year would resemble its fight against money laundering during 2003, when it sanctioned banks even if there was no suggestion that they had been indeed conduits for money laundering.

The seems to be some form of growing expectation that the FSA will likely 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 any FSA accusations in such an area……as ‘Are your controls adequate?’ could be looked at, as being 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 more responsibility for the systems and controls in the firm that they run. We….will take action strictly on that basis.”

But he also went on to say, that the FSA 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”.