April 26, 2010, 11:06 AM EDT
(Adds information-gathering powers from 12th paragraph.)
By Caroline Binham
April 26 (Bloomberg) — U.K. banks’ trading desks that violate Financial Services Authority rules could be suspended for up to a year under proposals from the regulator.
The U.K. regulator will be able to suspend individuals for as long as two years, and parts of a financial company’s business for one year, under tentative penalty guidelines published today. The review relates to how to enact powers given to the agency by the government through the Financial Services Act, which came into force this month.
“Suspension can be clearly and visibly linked to the misconduct, as it can be targeted at a particular activity, and can have an immediate effect on how a business operates or on an individual’s ability to work,” according to the FSA proposals. “If the breach of our rules has been carried out by a particular trading desk, we could prevent that desk from trading.”
The FSA’s review of the Financial Services Act comes 10 days before an election that could determine the agency’s future. The vote could put into power opposition Conservatives who have pledged, if elected, to carve up the FSA and return lender supervision to the Bank of England.
The Labour party government has argued that the Financial Services Act would reduce “underlap” in supervision between the central bank, FSA and Treasury. The third political party, the Liberal Democrats, also don’t want to disband the FSA. Recent polls point to a House of Commons where no bloc has a majority.
The regulator has in turn promised to be a tougher, more intrusive agency in the wake of the worst financial crisis since World War II. It has introduced a new code that would increase fines, in some cases tripling them. The FSA had a record year for fines, collecting 33.1 million pounds ($51.2 million) in the fiscal year ended March 31.
The ability to suspend a bank from selling certain products or undertaking particular activities for as long as a year will be a “greater deterrent than the imposition of a financial penalty” alone, today’s document said.
“These are very significant new powers, depending on how they will be used,” said Peter Snowdon, a former FSA lawyer who is now a regulatory attorney at Norton Rose LLP. “It could be a major part of someone’s business that could be stopped for a year, and for an individual it will be very damaging.”
The FSA wants to be able to fine those who breach short- selling rules. While the agency temporarily banned short selling of financial shares at the height of the financial crisis in 2008, it extended disclosure requirements until more general short-selling rules are set for the European Union.
Requirements to disclose the shorting of shares of companies undertaking rights offerings would be relaxed to only include companies that primarily trade their shares on a U.K. stock exchange, the FSA proposed today.
Short selling is when investors borrow shares and then sell them in the hope their price will drop. If it does, they buy the shares back at the lower price, return them to their owners and pocket the difference. Lawmakers on both sides of the Atlantic blamed the practice for exacerbating the share-price declines of banks during the credit crunch.
The FSA would have the power to request information from hedge funds, sovereign wealth funds, oil traders based overseas who deal in U.K. investments, and other entities it doesn’t directly supervise under the proposals published today. The information could range from trading strategies to what contingency plans a firm has in place should they suffer computer problems, the paper said.
Group of 20
Lawmakers from the Group of 20 Nations have agreed to tighten supervision to try to bring previously unregulated firms, like hedge funds, within the purview of regulators because they believe some could bring down the whole financial system should they fail. The FSA already regulates hedge-fund managers based in the U.K.
Today’s consultation is open until June. The FSA will publish a separate consultation on tightening up bonuses before the end of June, it said today. Banks already have to comply with a code that came into force in January, which pushes rewards paid in shares rather than cash, and discourages multi- year bonuses. Banks could be forced by the FSA to hold more capital if they don’t comply.
–Editors: Peter Chapman, Christopher Scinta.
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