HISTORIC PRESS RELEASE : New Powers for the Financial Regulator – Chief Secretary announces package of measures to tackle market abuse [May 1998]

The press release issued by HM Treasury on 6 May 1998.

Chief Secretary announces package of measures to tackle market abuse Tough new powers to help the new Financial Services Authority (FSA) tackle market abuse and financial crime were announced today by the Chief Secretary, Alistair Darling.

The measures, including steps to tackle insider dealing more effectively, will be included in the bill to modernise the financial services system.

This will further enhance the reputation of the UK financial markets as clean and fair places to do business by giving the FSA more effective powers to deal with the few bad apples, including the power to fine rogue traders.

The proposed package includes:

• giving the FSA the power to prosecute cases of insider dealing, other areas of market manipulation and breaches of the Money Laundering Regulations;
• the power to levy fines;
• a new civil regime for combatting market abuse;
• a Code of Market Conduct, produced by the FSA, setting out behaviour which would be unacceptable in the markets;
• giving the FSA rule making powers concerning anti-money laundering systems; and
• the creation of a single tribunal to consider appeals against the FSA’s use of its powers.

The Competent Authority for listing (presently with the London Stock Exchange) will also be given the power to fine issuers and directors for breaches of the listing rules.

These powers will be contained within the draft legislation that the Government will be publishing for consultation in the summer.

Announcing the measures the Chief Secretary said:

“We are determined to ensure that the financial markets are open and clean places to do business. London’s reputation depends upon that. That’s why we promised to crack down on insider dealing. Now we are delivering on that promise to make sure that insider dealers, and others who abuse the markets, do not get away with it.

“The FSA’s job is to sustain confidence in the market and to assist in the detection and prevention of financial crime. The FSA will now have the powers it needs to do that job.

“Its powers of intervention and discipline will be tough and effective. In some areas we are significantly extending the options available to the FSA.

“These proposals will further enhance the UK’s position as one of the best regulated and attractive financial markets in the world. We are determined to maintain London’s position as one of the foremost financial markets.”

On the FSA’s power to levy fines, Mr Darling said:

“Putting the powerful regulatory sanction of fining on a statutory basis will greatly enhance the FSA’s authority.”

The introduction of a new civil regime for combatting market abuse, including market manipulation and misuse of inside information, will mean that the FSA will be able to impose a fine on any person or firm, regulated or not, who engages in this type of abuse. The Chief Secretary made clear, however, that these powers are to complement and not replace the existing criminal offences in this area.

The Chief Secretary also announced that the FSA would, for the first time, be given powers to prosecute the criminal offences of insider dealing, market manipulation and breaches of the Money Laundering Regulations. He said:

“As the FSA will have the relevant knowledge and expertise it makes good sense to give them prosecution powers in this area.”

On the civil fines regime, Mr Darling said:

“It is essential that the financial markets are protected from abuse. Damage to the markets damages the economy as a whole. For the first time, the regulator will have a set of coherent and comprehensive civil powers in this area.”

The proposed legislation will also give the Treasury the power to prescribe the markets, and the products traded on those markets, which would be covered by the new regime. Mr Darling said that the initial coverage was likely to cover abuse, on or off-markets, which affects investments traded on recognised investment exchanges.

The new regime would be underpinned by a Code of Market Conduct, produced by the FSA following consultation, which would give greater certainty to the markets as to what kinds of behaviour were acceptable or not. The Chief Secretary said:

“It is not our intention that the new regime should stop generally acceptable market behaviour – far from it. Nor do we want to deter proper innovation in the financial markets. The aim of the Code is to provide market participants with a clearer understanding of the types of practices that will be tolerated and those that will not.”

The Chief Secretary also announced the creation of a single tribunal to consider appeals against the FSA’s use of its regulatory powers. The tribunal will be independent of the FSA and managed as part of the Court Service. He said:

“It is right to arm the regulator with an effective array of sanctions but these must be balanced by a satisfactory appeals mechanism. The new arrangements will be at least equal to, and in many cases better than, those available under the present system.”

Mr Darling also announced new powers for the Competent Authority for listing (presently with the London Stock Exchange), giving them the power to fine issuers for breaches of the listing rules, as well as directors and ex-directors where they had been directly responsible for such breaches. He said:

“The Stock Exchange currently does a good job in setting and policing the listing rules but it lacks the full range of powers. I am determined to remedy that. Effective regulators must have effective powers.”

The Chief Secretary also made clear that the current recognition and exemption regime for investment exchanges and clearing houses would be carried forward into the new legislation. He said:

“The UK’s recognised investment exchanges and clearing houses enjoy a substantial reputation throughout the world. This is due in part to their special place within the regulatory framework.

“This is the right regime to be taken forward in the new bill given the expertise of such bodies in the operation of their own markets, and their strong incentives to deliver well regulated markets.

“However, the new legislation will give the FSA greater powers of intervention to make sure that, in the rare event that something does go wrong, swift corrective action can be taken.”

The announcements were made in response to a Parliamentary Question from Ivor Caplin [Hove].