TOUGH new powers planned for Britain’s new financial watchdog provoked angry exchanges yesterday in the City, with some lawyers calling the measures an affront to natural justice.
Lawyers and firms have warned that the City’s new regulatory regime is being given powers that could reverse the ‘innocent until proven guilty’ rule of law.
Under proposals unveiled by the Treasury yesterday, the Financial Conduct Authority (FCA) – the new body being set up to protect consumers – will be able to inform investors of a pending enforcement before a firm has been able to mount a response.
Headed by Hong Kong regulator Martin Wheatley, the FCA will also hold the power to ban retail products before the conclusion of a probe.
Shocked City firms yesterday raised fears that the powers could have severe repercussions for businesses outed under the measure, even if they are absolved of any wrongdoing.
Founder of brokerage Hargreaves Lansdown Peter Hargreaves said: “If they said it about me, it would ruin my business. Shareholders would lose money and investors would leave.
“If they’re going to name and shame they need to be pretty sure they’re doing the right thing.”
City law firm Reynolds Porter Chamberlain attacked the plans as “contrary to principles of natural justice.”
Regulatory partner Steven Francis said: “By pre-emptively informing a firm’s clients of its investigation the new regulator could do serious damage to the firm’s reputation and business. The mere fact of an investigation simply should not be publicised until there has been an evidence-based determination.”
Changes to the way Britain’s financial services are controlled will begin as early as April, as staff from the Bank of England move to the FSA to gradually take on regulatory responsibility.
The move comes ahead of the creation of the Prudential Regulation Authority, an independent subsidiary of the Bank that will be headed up by Sants with Bank of England executive Andrew Bailey as his right-hand man.
The length and complexity of the process could also put Britain at a disadvantage internationally.
Lord Mayor of London Michael Bear said: “What’s unfortunate is the timing of the restructuring in regulation. The battle is going on [in Europe] – the last thing we want to do is to have to go back to ask how to fight the battle. It’s unfortunate we don’t have a strong regulator in place now, fighting tooth and nail for us. It’s the wrong time to be restructuring. There’s a degree of uncertainty where what we want is certainty.”
Partner at DLA Piper Michael McKee also warned it could hit the economy.
He said: “financial institutions often get pilloried and this will just increase that sense of ‘why would you give any money to finance’, which isn’t, in the long term, in the interest of the country or the economy.”