Britain’s soon-to-be overhauled financial regulator will have power to prosecute insider trading and market abuse, in a reversal of plans announced in May by the U.K. government.
Both civil and criminal market abuse will be enforced by the Consumer Protection and Markets Authority, the U.K. Treasury said today. The CPMA will be an independent regulator retaining many of the powers of the Financial Services Authority.
The FSA, which the government plans to abolish by 2012 and split into two new regulators, had lobbied against losing its prosecution powers to a new economic crime agency.
“After much consideration we have decided that for the moment the FSA’s powers of prosecution will lie with the new CPMA rather than the new economic crime agency,” the Treasury said in a statement.
The CPMA, like the FSA, will be funded by the financial services industry, while the crime agency will be government funded. The treasury said in May the white-collar crime agency would encompass powers of the Serious Fraud Office, which prosecutes overseas bribery and corruption, the Office of Fair Trading, the antitrust regulator, and the FSA.
“This makes a lot of sense,” said Tony Woodcock, a regulatory lawyer at Stephenson Harwood in London. The enforcement unit “runs better in parallel with the CPMA’s other objectives. It’s best to have them under the same roof.”
The move may put the future of the economic crime agency in jeopardy, Woodcock said.
It “throws into question how worthwhile it is to have the agency when a chunk of it is now missing,” Woodcock said. The OFT could also argue that it should retain its enforcement powers because they run in tandem with their regulatory oversight, like the FSA, he added.
The treasury said it “remains committed” to creating “a strong and powerful new ECA to tackle serious economic crime coherently and effectively.”
“The government recognizes the importance to the City of London of a strong markets division being established within the CPMA and giving it these powers will make it a stronger and more credible regulator,” the Treasury said.
The FSA is currently prosecuting 11 people for trading with insider information and has convicted six men for the crime since March 2009. It has levied about 85 million pounds ($135 million) in fines so far this year, up from 35 million pounds last year. The agency hadn’t prosecuted a criminal insider- trading case before 2008.
In a speech last week, Margaret Cole, the FSA’s head of enforcement, said that the “vast majority” of the regulator’s enforcement work will stay with the CPMA when the FSA splits into two “shadow” divisions next year to prepare for the structural changes before it is abolished.
The CPMA “must maintain a strong and effective enforcement function with the full range of powers,” Cole said. “We agree that there needs to be substantial improvement to the way the U.K. approaches the investigation and prosecution of white collar fraud.”
FSA spokesman Chris Hamilton declined to comment.
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