The FSA's enforcement Queen says she will not stop fighting big cases

IT is never easy to focus on the task at hand when the future of your organisation is in doubt &ndash; so even the Financial Services Authority&rsquo;s (FSA) sternest critics should spare a thought for the beleaguered watchdog&rsquo;s staff, who are all wondering what will happen to them over the next 12 months. <br /><br />But many are doing a great job at hiding any worry they may have. Margaret Cole, the high-flying director of the FSA&rsquo;s enforcement division, is certainly a case in point. She saunters into one of the watchdog&rsquo;s first floor meeting rooms in Canary Wharf looking relaxed and confident. <br /><br />It is an impressive display given the mounting uncertainty that surrounds the FSA. The government continues to say it will give the body wide-ranging new powers when parliament sits again in the autumn to ensure the stability of the UK financial system. It undoubtedly means it, and the new laws may even be voted through. However, this week shadow chancellor George Osborne said he would abolish the FSA if the Tories are elected next year, transferring most staff to the Bank of England and some to a new consumer agency. <br /><br />Osborne, whose party is miles ahead in the opinion polls, will do away the tripartite regulatory system &ndash; made up of the FSA, the Bank of England and the Treasury &ndash; established in 1997 under the then chancellor Gordon Brown. Osborne said this sharing of duties left &ldquo;nobody in charge with nobody taking responsibility.&rdquo; <br /><br /><strong>FSA TO BECOME CONSUMER AGENCY</strong><br />The Conservatives plan to hand powers to regulate banks and ensure financial stability back to the Bank, led by governor Mervyn King. The FSA&rsquo;s rump will be replaced with a new Consumer Protection Agency, tasked with championing the rights of customers who buy products from financial institutions. It is unclear who exactly will end up controlling the FSA&rsquo;s enforcement division. <br /><br />Yet Cole, a petite 48-year old blonde, seems unphased at such a sea change. She is a lawyer by trade, and like many in her profession you get the feeling she never starts a sentence before knowing exactly how it will end. She explains: &ldquo;The view of the enforcement division is to focus on the job regardless of what may or may not happen. All the talk on all sides of the political spectrum is on tougher enforcement. And it would be sad if people were distracted from this.&rdquo;<br /><br />Observers say that many of the 2,500 staff at the FSA &ndash; including the 430 at the enforcement division &ndash; will remain in place, but will simply work under a new banner. However, if the Bank does gain these new powers, it may be tempted to put its own people in charge of the key units, to ensure a clean break with a past regime that is seen as a failure by many.<br /><br />All of this must be frustrating for Cole, who reports directly to FSA chief executive Hector Sants, and who was never part of the &ldquo;light touch&rdquo; culture the watchdog was so proud of until two years ago. She has been giving speeches as far back as 2007, arguing that her unit needed the power to criminally prosecute certain types of market abuse such as insider dealing, a view which chimes well with the current mood in Westminster.<br /><br />She joined the agency four years ago from US law firm White &amp; Case with a stellar reputation as a commercial disputes lawyer who was no stranger to high-profile cases. She represented the Royal Bank of Canada in a $500m (&pound;304m) case concerning Enron-related swaps. <br /><br />And in the 1990s she acted to recover the Robert Maxwell company pension funds on behalf of the liquidators, and also recovered funds after the liquidation of the Bank of Credit &amp; Commerce International. <br /><br />Cole says: &ldquo;I never was light touch. That is an oxymoron in enforcement. There is a new sense that regulation has to be tougher. We welcome that. We have been arguing for tougher sentences as a way to change behaviour for some years. There had to come a time when we had to stand by our words with actions.&rdquo;<br /><br /><strong>INSIDER DEALING CASES</strong><br />In March Cole, was able to demonstrate that she meant what she said about jail time, when the FSA successfully concluded its first insider dealing case. <br /><br />A solicitor, Christopher McQuoid, 40, who tipped off his father-in-law and profited from a takeover deal was jailed for eight months. His father-in-law, James Melbourne, 75, was given the same sentence, but suspended for 12 months, partly because of his age.<br /><br />However, many observers wonder why the enforcement division, staffed with hundreds of professionals and with an annual budget of &pound;43.4m, did not pick a bigger target as a means of sending a message to the market.<br /><br />Cole says: &ldquo;We couldn&rsquo;t wait for the perfect case to come along, that had big names and concerned big players in the market.&rdquo; She adds: &ldquo;We have a number of cases under investigation now that are made up of wider rings with City professionals and people that are in positions of trust. We wanted to begin a flow of cases, and that is what we have done.&rdquo;<br /><br />Cole says three more insider dealing cases are due to come to court this year.<br /><br />The FSA&rsquo;s head of enforcement says it took a lot of work to get to this point. When Cole took charge in 2005 she had 250 staff. But she quickly realised she did not have enough personnel with sufficient legal and financial experience to prosecute big cases. In 2006 she cut staff numbers by 32 per cent to 170 as she axed less experienced staff and looked for more senior hires. Currently the division employs 320 staff, but this is set to expand to 430 in October when her division takes over the FSA&rsquo;s financial crime unit.<br /><br />Last year, the enforcement division brought in &pound;27.3m of fines, compared to &pound;4.4m the year before. Cole puts the low collection of fines in 2007 down to the great change in staffing that year which &ldquo;undoubtedly had an effect on the speed of our workflow&rdquo;.<br /><br /><strong>MOOD AT THE FSA</strong><br />Despite the axe hanging over the 12-year-old watchdog and rumours that senior staff are already looking for the door, Cole is adamant that the enforcement division is largely immune to this.<br /><br />She maintains, perhaps not entirely convincingly: &ldquo;The mood is positive. People in the division are motivated to now see so many cases coming to trial. We have high quality staff now inside the enforcement division. We have the personnel we need for the work ahead of us.&rdquo;<br /><br />She adds: &ldquo;We may lose cases, and it never feels good to lose cases. But we have to do the difficult things. It is not about quick wins. If we won every case, it would mean we were not going after all that we should.&rdquo; <br /><br />She doesn&rsquo;t show it, but Cole must be irritated that, after winning a four-year battle for greater resources and tougher penalties, the Tories are set to tear up the lay of the regulatory landscape, even though they agree with cracking down on fraud. One thing is sure, however. Even if the FSA is dismembered, we have not seen the last of Margaret Cole.