8 SPAIN: Still Trying to Fix lasCajas • 8 ITALY: Mandatory Mediation • 9 UNITED KINGDOM: Scrub
Those Greasy Palms • 10 UKRAINE: Law Firm Raided • 11 Lateral Moves • 13 EUROPEAN UNION:
No to a New Patent Court
ILLUSTRATIONS BY JON REINFURT
UNITED KINGDOM
Goodbye to the FSA
Some British political institu- tions have lasted centuries. Then there’s the Financial
Services Authority (FSA), about to be
cashiered after just 14 years of existence.
Then–chancellor of the Exchequer Gordon Brown created the FSA in 1997 as
an independent financial overseer to replace a lax system of fractured
regulation. Now David Cameron, Brown’s successor as prime
minister, plans to dismantle the
FSA and divide its responsibilities among three new entities.
By shifting power to the
Bank of England and pursuing
“more proactive intervention,”
the government says it envisions
a system of “more judgment-led,
focused, and effective regulation,” according to a white paper
that the U.K. Department of the
Treasury published in February.
Some members of London’s
financial regulatory bar question whether the push for reform is more a matter of political posturing than an initiative
to achieve real change. “A lot of
this is politically driven in reaction to the financial crisis,” says
Ian Mason, a partner in Baker
& McKenzie’s financial services
practice in London. Still, he
predicts the overhaul will mean
stricter regulation of large financial in-
stitutions. “[Regulators] will be more in
your face, and they will be tougher,” he
says. “They will be getting involved with
you at an earlier stage probably, particu-
larly if you’re a big company.”
The FSA, roughly speaking, mirrors
the financial services enforcement by
the Securities and Exchange Commis-
sion, Federal Reserve System, U.S. De-
partment of Justice, Federal Deposit In-
surance Corporation, and various state
agencies, such as insurance regulators—
all rolled into one. Its record has been
mixed, at best. It imposed tough capital
requirements on the insurance industry,
averting disaster in that sector after the
dot-com crash of the early 2000s. A few
years later the FSA received recogni-
tion for curbing abusive practices in the
marketing of complex, abstruse financial
products, such as split capital investment
trusts and high-income precipe bonds.
But the financial crisis of recent years
ent.” Forthcoming regulations and rule
books will spell out more detail; the gov-
ernment aims for implementation by the
end of 2012. Parliament must approve it
before the proposal becomes law.
One of the three proposed entities,
the Prudential Regulation Authority
Scrutinizing the plan’s potential pitfalls for clients, some lawyers point to a provision to empower the FCA and PRA to ban
financial products even before
they are launched. More generally, there are concerns about a
proposal for the PRA and FCA
to apply a greater degree of
“judgment-led” discretion—
decisions based on sometimes-vague business principles rather
than on codified rules.
“It’s very hard to challenge the [regu-
lators’] subjective judgment on a partic-
ular matter when they haven’t been re-
quired to tie it to a specific rule,” notes
Ben Kingsley of Slaughter and May.
Kingsley says companies subject to
PRA and FCA regulation ought to gird
themselves for more rigorous scruti-
ny—at least for a while. He predicts:
“Both [the PRA and FCA] are going
to want to make a bit of a splash in the
first year or two of regulation, and the
best way to make a splash is by trum-
peting some enforcement actions.”
—Joseph Rosenbloom
Britain is replacing the FSA
with a new financial watchdog.
Three of them, in fact.
cast a dark light on the agency. It was
pilloried for “light touch” regulation and
accused of not acting to prevent the collapse of banks—notably Northern Rock
plc, nationalized in 2008 after a run on
its deposits.
There is still much uncertainty about
how the Cameron government’s plan
will play out in practice, according to financial services partner Carmen Reynolds of White & Case. She says that the
proposal thus far outlines a “high-level
framework” to restructure regulatory
authority among three new entities but
does not contain “enough information
yet to know if much is going to be differ-
