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Margaret Cole |
Last week, Margaret Cole, Director of Enforcement at the Financial Services Authority (FSA), stepped into an American lion's den to give the annual Sommer Lecture on corporate, securities and financial law at the prestigious Fordham Law School in New York. In this lecture, "The UK FSA: Nobody does it better?", she argued for the "light touch" principles-based approach of a single national regulator as opposed to the more prescriptive and enforcement-based approach of the many US regulators.
Cole argued that the philosophy of exhausting market-led solutions before resorting to changes in regulation was more conducive to market efficiency and more practical in the face of cross-border complications. This was supported by the principles-based approach of the FSA – focussing on outcomes rather than the tick-box mentality of prescribing detail rules – which allowed companies to concentrate on what was good for their business, their customers and the society around them. This philosophy was implemented with a risk-based approach to enforcement – aligning the FSA's finite resources with the big risks that matter most: currently market abuse and treating customers fairly.
Cole said "The FSA's decision to be a risk-based regulator is a conscious and deliberate decision and we regularly review the amount of risk we are prepared to accept and focus our resources on the risks that we consider matter the most." Cole acknowledged that this approach had allowed cases of market abuse to escape prosecution. Only 8% of the FSA's staff worked in enforcement – as opposed to over half at the SEC – but, despite fewer prosecutions, London was now raising more the two New York markets combined with fewer scandals than the turbulent early 1990s.
Cole concluded "I believe that our light-touch approach to regulation, with its growing emphasis on principles, backed up by bold and strategic enforcement action, is highly effective. I would point to London's current success on the global stage as irrefutable evidence of this but we also know that we are not perfect. This is a competitive world and we don't intend to rest on our laurels."
In the same week, in a speech, "Principles based regulation: the EU context" at the APCIMS Annual Conference in Barcelona, John Tiner, the Chief Executive of the FSA, described the shift to principles-based regulation as not only desirable but inevitable with the European context. Last Tuesday the FSA also released "Implementation plan for MiFID - Update" (PDF document) with new scheduled dates.
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