UK: Law Commission report - "Anti-money laundering: the SARs regime"

The Law Commission for England and Wales has published its report and recommendations concerning the regime for the reporting of suspicious activity within the UK's anti-money laundering and terrorist financing framework: see here (pdf). A summary is available here (pdf, English) and here (pdf, Welsh). The report contains 19 recommendations, including the creation of an advisory board with oversight over the drafting of guidance and responsibility for measuring the effectiveness of the reporting regime.

UK: Commons Treasury Committee launches economic crime inquiry

The House of Commons Treasury Committee has begun an inquiry exploring certain aspects of economic crime: see here. More specifically, there two broad areas for examination have been identified: (1) anti-money laundering and sanctions (including, for example, the scale of money laundering and the impact of the regulatory regime); (2) consumers and economic crime (including, for example, the effectiveness of financial institutions in combating economic crime and the security of consumer data).

UK: OPBAS and updated Money Laundering Regulations

The Government yesterday announced the creation of a new organisation: the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), as part of work updating the Anti-Money Laundering (AML) supervisory regime: see here. OPBAS will be hosted by the Financial Conduct Authority and will be funded through a fee paid by professional body supervisors. In general terms, the role of OPBAS will be to work with the supervisors to ensure compliance with the Anti-Money Laundering Regulations. The Government is seeking views on the precise mandate and powers of OPBAS: see here (pdf). It is also seeking views on draft Money Laundering Regulations 2017 that were also published yesterday: see here.

UK: FCA review of banks' control of financial crime risks in trade finance

The Financial Conduct Authority has published the results of its thematic review of banks' control of financial crime risks in trade finance: see here (pdf). The review found that policies, procedures and controls to counter money laundering risk were generally weak, with most banks having inadequate systems and controls over dual-use goods (e.g., software, technology, documents, diagrams and other goods that can be used for civil and military purposes).

UK: financial crime, a guide for firms - FSA consults on changes

The Financial Services Authority is consulting on changes to its regulatory guide Financial Crime: A Guide for Firms following a recent review of anti-bribery and corruption systems and controls in investment banks: see here (pdf). The FSA's Guide sets out the regulator's expectations of firms' financial crime systems and controls and contains examples of the steps that firms can take to reduce the risk of being used to further financial crime, including what role should be performed by the board of directors and the information it should receive.

FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation

At a plenary meeting last week the Financial Action Taskforce (FATF) approved a new edition of the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation, The FATF Recommendations: see here (pdf). The European Commission has announced that the changes made will be implemented in the European framework: see here.

UK: financial crime debate in the House of Lords

There was a debate on financial crime in the House of Lords yesterday and the question of implementation of the Bribery Act (2010) was once more raised. The debate was moved by Baroness Williams of Crosby to call attention to the United Kingdom's record on legislation regarding bribery, tax avoidance, corruption and money laundering. Contributions were wide ranging; Hansard, the record of debate, can be read here. Lord Sassoon, on the Government's behalf, stated (at col. 390):

One of the questions asked by my noble friend Lady Williams concerned responsibility. Responsibility for implementation [of the Bribery Act (2010)] is with my right honourable friend the Justice Secretary, who is concerned to ensure that the Act is implemented in a way that tackles bribery effectively but avoids imposing costs or uncertainty on business and certainly does not make this another gold mine for lawyers advising on either implementing or picking up the consequences of the Act. It is the intention of my right honourable friend and the Government to publish guidance shortly. Implementation of the Act will follow publication after three months, in order to give businesses time to prepare themselves. On the other question about responsibility, I can confirm that enforcement of the legislation will be a matter for the Serious Fraud Office and the police".

New Zealand: Securities Commission annual report published

The Securities Commission has published its 2010 annual report: see here (html) or here (pdf). This provides, amongst other things, an overview of the regulatory changes taking place in New Zealand and discussed by the Commission's chairman, Jane Diplock, in her report:

In September 2009, the Report on the Effectiveness of New Zealand's Securities Commission [here, pdf] was published by two independent experts ... Their key findings were that the Commission was an efficient and effective organisation within the constraints of its funding and legislative remit. The report concluded that New Zealand securities regulation has been hampered by the Securities Commission's narrow mandate, and limited powers and funding. This view reflects the Commission's own and the recommendations we have consistently made to government in recent years.

Consequently, the Commission has actively supported the process of regulatory reform over the past 12 months, working with the Capital Market Development Taskforce and the Ministry of Economic Development (MED). Like many other New Zealanders, I am enthusiastic about the potential of the new Financial Markets Authority (FMA) when it takes over the functions of the Securities Commission in 2011. It will combine the functions of the Securities Commission with some regulatory functions of the Companies Office, the MED's National Enforcement Unit, the Government Actuary and NZX".

UK: the FSA's powers of prosecution

The Supreme Court gave its judgment today in R v Rollins [2010] UKSC 39. The case concerned the Financial Service Authority's powers of prosecution. It was argued that the FSA's power to prosecute criminal offences was limited to the offences referred to in Sections 401 and 402 of the Financial Services and Markets Act (2000) and that the FSA could not, therefore, prosecute other offences including those of money laundering contrary to Sections 327 and 328 of the Proceeds of Crime Act (2002). A unanimous Supreme Court rejected this argument. A summary of the court's judgment is available here (pdf).

Europe: revising the Market Abuse Directive - Commission consultation

The European Commission has today published a consultation paper seeking views on revisions to the Market Abuse Directive (MAD) (2003/6/EC): see here (pdf). Amongst the questions asked are:

• Should MAD be extended to cover attempts to manipulate the market?
• How can the powers of competent authorities to investigate market abuse be enhanced?
• To what extent need the sanction regimes be harmonised at the EU level in order to prevent market abuse?
• How can the system of cooperation among national and third country competent authorities be enhanced? What should the role of the European Securities and Markets Authority be in this regard?

UK: financial regulation reform - Parliamentary statement

The Financial Secretary to the Treasury delivered a statement to the House of Commons yesterday on the Government's proposals for financial regulation reform: see here. The statement provides further information on the new institutional structure and the responsibilities of the Bank of England, Financial Policy Committee, Prudential Regulation Authority and Consumer Protection and Markets Authority.

UK: financial regulation reform - reactions

Lord Adair Turner, the chairman of the Financial Services Authority, was interviewed this morning on Radio 4's Today programme about the changes announced yesterday: listen here. The Chancellor was also interviewed: listen here. The Governor of the Bank of England, Mervyn King, welcomed the new responsibilities being given to the Bank of England in his speech last night at the Mansion House: see here.

UK: the abolition of the FSA and the new financial regulation framework

Last night the Chancellor of the Exchequer, the Rt Hon George Osborne, delivered his first Mansion House speech - see here - and outlined, in general terms, significant changes to the structure of financial regulation in the UK. The Financial Services Authority will be abolished in its current form and a new prudential regulator, a subsidiary of the Bank of England, will be created.

Other changes are outlined in the following extract from the Chancellor's speech (further information will be provided in Parliament later today by the Financial Secretary to the Treasury, Mark Hoban MP):

... the Government will abolish the tripartite regime, and the Financial Services Authority will cease to exist in its current form. We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England. It will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies.

We will create an independent Financial Policy Committee at the Bank, which will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and take effective action in response. We will also establish a powerful new Consumer Protection and Markets Authority. It will regulate the conduct of every authorised financial firm providing services to consumers. It will also be responsible for ensuring the good conduct of business in the UK’s retail and wholesale financial services, in order to preserve our reputation for transparency and efficiency as well as our position as one of the world’s leading global financial centres.

I can also confirm that we will fulfil the commitment in the coalition agreement to create a single agency to take on the work of tackling serious economic crime that is currently dispersed across a number of Government departments and agencies. We take white collar crime as seriously as other crime and we are determined to simplify the confusing and overlapping responsibilities in this area in order to improve detection and enforcement.

I have thought longer and harder and spoken to more people about all these issues than almost any other issue to have crossed my desk. We do not undertake these reforms lightly, and we do so only because we believe they are absolutely necessary. We will handle the transition carefully, consult widely and get this right. The process will be completed in 2012".

Europe: Commission Communication on financial services regulation

The European Commission has published a Communication titled Regulating Financial Services for Sustainable Growth: see here (pdf). The Communication describes the actions already taken by the Commission as well as forthcoming proposals. The Commission intends that the vast majority of its new proposals will be presented to the Council and European Parliament by the end of 2010.

These proposals will cover derivatives, credit default swaps, short-selling, improvements in the Markets in Financial Instruments Directive, revisions to the Deposit Guarantee Schemes Directive and the Investor Compensation Schemes Directive, revisions to expand the scope of the Market Abuse Directive to include derivatives, amendments to the Capital Requirements Directive (CRD IV), a Communication on sanctions in the financial services sector to promote convergence, and further work on international accounting standard convergence.

UK: England and Wales: the Winterflood case and market abuse

The ICLR, as part of its (free) WLR Daily service has published a summary for Winterflood Securities Ltd & Ors v The Financial Services Authority [2010] EWCA Civ 423: see here.

UK: insider dealing - arrests made in first joint FSA/SOCA investigation

The Financial Services Authority and Serious Organised Crime Agency have made arrests in connection with their first joint investigation of insider dealing. The investigation began in 2007. The FSA reports on its website:

Six men including two senior city professionals at leading city institutions and one city professional at a hedge fund have been arrested on suspicion of being involved in a sophisticated and long-running insider dealing ring. It is believed that the city professionals passed inside information to traders (either directly or via middlemen) who traded based on this information and have made significant profits as a result".

UK: FSA imposes largest fine to date against an individual for market abuse

The Financial Services Authority has fined Mehmet Sepil, the chief executive officer of Genel Enerji, a Turkish oil exploration company, £967,005 for dealing in the shares of a UK listed company (Heritage Oil Plc) on the basis of inside information. The fine was made up of a profit disgorgement element (£ 267,005) and penalty (£ 700,000) and is the largest so far imposed by the FSA against an individual for market abuse under the Financial Services and Markets Act (2000). The penalty of £ 700,000 was reduced from £ 1,000,000 because Mr Sepil agreed to settle at an early stage in the FSA's investigation. In its final notice, the FSA stated (paras. 3.3 and 3.4):

The FSA finds that you did not set out to commit market abuse, that you were not familiar with the legal requirements which prohibited you from dealing in Heritage shares, and that you had not received advice on these at the time. This was a serious example of insider dealing by a person in a key position of responsibility. While you were not an approved person, you were the Chief Executive Officer of a company engaged in takeover discussions and had inside information about Heritage’s operations".

Genel Enerji’s chief commercial officer and its exploration manager were also fined for dealing in Heritage’s shares on the basis of inside information.

For further background information see here.

Australia: what is an 'artificial price'?

Section 1041A of the Corporations Act (2001) provides that a person must not take part in, or carry out, a transaction (or two or more transactions) that are likely to have the effect of creating an artificial price for trading in financial products on a financial market operated in Australia. The concept of an 'artificial price' is not defined in the 2001 Act but, for the first time, the Federal Court provided a definition yesterday in Australian Securities & Investments Commission v Soust [2010] FCA 68. The trial judge, Goldberg J., held (at paras 90 - 91):

I consider that the expression 'artificial price' in s 1041A connotes a price created not for the purpose of implementing or consummating a transaction between genuine parties wishing to buy and sell securities, but rather for a purpose unrelated to achieving the outcome of the interplay of genuine market forces of supply and demand ... It is fundamental to the working of the free market forces of securities exchanges such as the ASX that buyers are concerned to buy securities at the lowest possible price and sellers are concerned to achieve the highest possible price. Any different approach to the price for which securities are traded is a distortion of the interplay of the open market forces of supply and demand ..."

UK: Coroners and Justice Bill receives Royal Assent

The Coroners and Justice Bill received Royal Assent last week. A copy of the Act will be available here shortly. Section 109 of the Act amends Section 71(4) of the Serious Organised Crime and Police Act (2005) by the insertion of the following as specified prosecutors: [a] the Financial Services Authority and [b] the Secretary of State for Business, Innovation and Skills, acting personally. The effect of this amendment is to give the FSA and Secretary of State the power to grant individuals - e.g., those assisting in criminal cases - immunity from prosecution. 

Update (20 November 2009): a copy of the Act is available here (pdf). 

Update 2 (23 November 2009): a copy of the Act is available here (html). 

UK: FSA proposes increased penalties

The Financial Services Authority has today published a consultation paper in which it sets out proposals to increase substantially the penalties in enforcement cases as part of a new penalties framework. A significant proposal is the introduction of a minimum penalty of £ 100,000 in market abuse cases. The FSA also proposes to amend its Enforcement Guide in order to clarify that it may publicise enforcement action in criminal cases where proceedings have not yet commenced. 

For further information see: press release | newsletter | consultation paper | examples of how the new framework will operate | online response form |