FSA right to probe – but care needed

Allister Heath
FOR everybody’s sake, let us hope the Financial Services Authority knows what it is doing. Its massive insider trading raids have certainly shaken up the City – wherever one goes in the Square Mile, in Canary Wharf and in Mayfair, people are talking about the probe. This was exactly what the FSA wanted to achieve: those who might have thought that they could get away with breaking the law, or that the regulators were soft or stupid, must now be fully aware this isn’t so. It is also encouraging that the FSA is now beginning to obtain convictions as a result of its previous investigations, not least in the recent case of Malcolm Calvert – though only five people have been jailed since 2009, including one suspended sentence. One must also hope that the crackdown helps to convince the public that financiers and investors are being forced to respect the law, just like the rest of the population, and that this helps to reduce the virulent hatred of the City now prevalent in most of the country.

But serious worries remain nevertheless that the FSA’s robust new approach could have destructive side-effects. We should never forget that anybody accused of a wrong-doing must be considered innocent until they are proven guilty in a fair trial. Nobody – neither the regulator, the authorities or the media – should ever presume guilt; it would be a terrible injustice were incorrect allegations or unwarranted arrests to destroy people’s reputations and livelihoods. This is especially important in the City, where perceptions and rumours are so important to someone’s future prospects. Not everyone who is arrested ends up being convicted: that is why we have a courts and criminal justice system.

It is also important that the FSA is not perceived to be singling out a few easy targets. One way for the authorities to combat this would be to release any general information they have on the extent of insider dealing – or to commission more scholarly, academic work on the subject. Some believe that the practice is rife, others disagree – we need a more scientific approach.

There are other worrying developments. Under the restraint orders placed on those arrested, there is a ban on realising or disposing of assets until the investigation is completed, which may take many months. Shockingly, the men are allowed to spend just £300 a week to cover their families’ needs including food, bills, mortgages, school fees and even legal fees. This is an extremely dangerous development which could force people who have not been convicted of any crime into bankruptcy or poverty; the men must now apply to the courts to have their assets unfrozen or the spending limit raised. There must be a better way of preventing abuse without forcing people to rely on handouts from relatives or legal aid.

In general, however, the law is clear in Britain: insider dealing, as defined in the legislation, is illegal. It is therefore right that any wrong-doers be prosecuted, as they are in America. It was absurd that the authorities didn’t convict anybody for insider dealing until very recently; laws should be applied consistently and properly or repealed. Anything less gives the authorities too much leeway to pick and choose who they seek to prosecute, thus destroying the rule of law. On balance, therefore, the FSA is to be commended for its recent actions. But it must tread carefully – and above all it must make sure that it is not seen to be abusing its very substantial powers.