Memorandum by London Investment Banking
Q1. The Government has made several proposals
for enhancing the accountability of the FSA. Are you now happy
with the FSA's proposed level of accountability?
Do you think making the establishment
of the Enforcement Committee a statutory requirement would improve
While agreeing that the measures announced by
the Treasury are important steps forward we would like to see
the following additional steps:
(i) Annual Report: We would like to see FSA
required to include in its annual report:
an explanation of any occasion
on which it has introduced a rule (or other obligation) more onerous
than required by the relevant international or European standard;
the level of expenditure on the
public awareness objective;
an account of FSA's international
(ii) Consultation: There should be an obligation
to provide a feedback statement on all consultations (see also
paragraph 19 below).
Where rules are introduced without consultation
because of urgency FSA should seek views after the event and provide
FSA should be required to explain the methodology
used in cost/benefit analyses, and also to give some analysis
of alternatives to the rule chosen.
The essential purpose of the Enforcement Committee
is to ensure that decisions to take enforcement action are taken
by appropriate persons who are independent of the regulator and
investigatory authorityin the same way as decisions to
prosecute criminal offences are taken by the Crown Prosecution
Service. The persons should include someone with appropriate legal
experience and someone with commercial experience relevant to
the type of business concerned. The importance of their role is
such that it is desirable those points should be included in the
Q2. What type of arrangements for independent
investigation of complaints made against the FSA do you think
would be most effective?
The independent investigator should not be appointed
by the FSA or the Treasury. If the PCA is not the investigator
the process of appointment should be similar to that for appointment
of the PCA.
Q3. The draft Bill requires the FSA to carry out
public consultation whenever it proposes to change its rules.
The Association of Unit Trusts and Investment Funds (AUTIF) has
suggested that the FSA should also be required to consult on all
policy initiatives affecting one or more sections of the regulated
community. Do you think there is a need to require the FSA to
consult on matters going beyond proposed rule changes?
LIBA considers that consultation should cover
all requirements which are in practice mandatory and potentially
the subject of enforcement action.
There is little substantive difference between
a rule, a principle, a code and guidance if breach of any of them
is subject to the same enforcement process. For example, if there
is a principle that persons are to maintain proper standards of
market conduct, and breach of that principle is a disciplinary
offence subject to unlimited fine or removal of authorisaiton,
"guidance" which lays down what is and what is not considered
proper conduct is in effect a rule under another name.
Q4. The AUTIF has also suggested that the FSA
should hold public hearings on important policy proposals. Do
you think that would be a useful step towards increasing the FSA's
Yes. Public debate is a useful discipline
Q5. Are you satisfied that the rule-making procedures
fully accord with the Better Regulation Unit's principles of good
No. A few quotations from the Guide indicate
areas where the FSA proposals do not seem to match up:
"A full Regulatory Impact Statement should
accompany any external consultation . . . " 2.1.
"[In consultation documents] include a
statement that responses will normally be made public." 2.6.
"Integrate with previous regulations. If
the regulation overlaps with another measure, try to replace it
with a combined and streamlined regulation . . . How will those
who are being regulated get the full picture of what is required."
"Helping business and others comply in
the most effective way should . . . be one of your key aims. This
cannot be achieved solely by detection and punishment of breaches
by enforcement officials. Neither do you want the enforcement
and sanctions to be so strict that you are effectively discouraging
those who are being regulated from performing legitimate activities
or forcing them through fear or uncertainty, to go to unnecessary
lengths to comply." 4.4
Q6. Several bodies have suggested that the FSA
should be subject to periodic efficiency audit by the NAO. What
is your view?
LIBA considers both that the financial audit
of FSA should be conducted by the National Audit Office(NAO) and
that NAO should conduct periodic value-for-money scrutiny. FSA
has a breadth of power which would more normally be within a government
department. NAO has experience both of auditing departments and
of conducting value-for-money scrutiny of public policy organisations
such as departments and public corporations, and it is wholly
appropriate that it should perform both roles in respect of FSA.
14 April 1999