Jobs for the boys and girls at the FSA!

Regular readers of this blog will know that I have long been very critical of the failure of the FSA to police the financial markets effectively!

I have never tried to disguise my contempt for the way in which the lead regulator has consistently failed to use their prosecutorial powers to bring actions against financial criminals. 

I am unrepentant in my firmly-held beliefs that only strategically-targeted prosecutions brought against some of the most egregious organised crooks and Mafiosi who work in the City will work to stop them. 

It would have a salutary impact upon the widespread incidence of criminal conduct which has been exposed in the recent examples of organised theft, fraud and money laundering, and perpetrated by some of the biggest names in the banking sector!

Criminalising the bastards is the only way to take them down, and exclude them from the financial sector. It is a solution whose time came of age a long time ago, and I don't know what is stopping it being used aggressively, remorselessly and with maximum prejudice. I think it is a class issue and too many people in the regulatory sector come from the same social background, and they are frightened to exercise their powers too effectively for fear of being excluded from the gilded job opportunities that await former regulators in the banks and the Big 4 consultancies if they don't rock the boat too much!

I have long wondered at the reasons behind this wholesale lack of moral courage and ambition to go after the biggest criminals and to bring them down. When I was at the Fraud Squad, our primary aim was to go for the most high-profiled crooks we could set our sights on! The FSA was tasked with the job of taking down financial criminals from its earliest days, and it has had the powers to prevent financial crime and to prosecute market manipulators, insider dealers and money launderers since 2001.

For many years since its inception, the FSA has routinely ignored the responsibility given to it by Parliament. In 1998 I was commissioned to write a review for H.M.Treasury, examining the state of money laundering controls in the London markets. In the course of so doing I was able to interview a number of senior officials from the putative FSA about the way in which they would use their new powers to deal with financial crime. One official said to me;

“…There is an anxiety about the new criminal functions which we are being tasked to accept…various elements such as insider dealing, market manipulation, etc, all tend to colour our internal philosophy towards the question of conducting prosecutions…you really should understand, because of the difficulties associated with obtaining convictions in the criminal courts, there is no unswerving acceptance of the need for wholesale prosecution powers…”

In other words, there was not going to be any serious policy of bringing prosecutions if the FSA could help it!

I have wondered in the past whether the FSA was really serious about financial crime, because they did not seem to invest any serious time or effort into formulating any meaningful response to its existence.

I was once approached at a public conference by a young German woman who asked me if she could have a copy of my paper which I had just presented.  I asked her why she wanted it and she told me that she had been seconded to the FSA from Goldman Sachs for a year's sabbatical. The FSA had entrusted her with formulating their Financial Crime policy, but knowing nothing about financial crime, she was going to every conference she could find and blagging copies of papers she had listened to which she thought might be useful to her.

I rang her manager and suggested that the FSA hire me for a couple of weeks to come in and teach this young woman what she needed to know about financial crime so that she could make a genuinely valid contribution to the debate. His answer was interesting. He said;

'...Why on earth would be bother to consult you? If we need any low-level consulting of this kind we can get it all for free from one of the Big 4 consulting firms. They do it for nothing for us because they like to be privy to our thinking...'

That put me firmly in my place!

I have written many times that proper criminal prosecutions are the only way to ensure that the financial sector will ever toe the line. Anything else is just window dressing. Why should financial practitioners who steal their client's money or defraud them by mis-selling, or who manipulate the LIBOR market to the financial detriment of others, be allowed to walk away from the consequences of their actions without any meaningful penalty?

I have presented strong written evidence demonstrating that criminal prosecution contains the greatest exclusionary impact for wrong-doers and means that they can never come back to their former stamping grounds, because their former business partners will not do business with them. So why does the FSA continue to focus on fines and regulatory penalties for serial offenders, which they know the business sector does not fear or respect?

One answer which has occurred to me is that perhaps the people who are employed to enforce the financial crime criminal agenda inside the FSA are simply not competent enough, or perhaps lack specific criminal investigatory experience, to enable them to know how to go about dealing with these criminals. Perhaps they feel inhibited by their lack of knowledge and skills to be able to take on and face down these scumbags.

Make no mistake, going up against a professional financial criminal, particularly if he has a solicitor present, requires good knowledge, sharp skills and a lot of moral courage. You have to first know how to handle the situation where the bad guy is going to attempt to needle you and get under your skin, suggesting that you are a financial incompetent who doesn't understand the arcane rules of his market. You have to know how to give as good as you get and take the initiative so he never gets the upper hand!

He is going to try and make you feel small, so that even you begin to doubt yourself, and you must know how to get under his skin and past his guard if you are going to be effective.

You have to know how to deal with a suspect when he has to be cautioned and how to conduct an interview that will be admissible later on in Court and won't get thrown out because you missed one of the many myriad rules of conduct for the treatment of suspected persons.

All these skills come with time, repeated experiences and many court appearances. You don't just acquire them by osmosis, copying other's copies of power-point, or watching old repeat episodes of Inspector Morse.

A properly trained detective, who is one of the very few people fully equipped to deal with criminals, spends his or her entire career studying the composition and psychology of the criminogenic personality, and all will admit that it is a never-ending learning curve!

Just because someone is a solicitor does not mean that they are going to have the skills necessary for these requirements. Of the solicitors in the regulatory milieu, the vast percentage of them undertook their training in City commercial firms, where they specialised in civil law. Criminal law is still looked down upon in many law firms inside the Square Mile, although some have begun to develop more wide-ranging regulatory/criminal practices as more and more of their natural client base find themselves potentially falling foul of the criminal law.

I worked in a major City law firm for ten years advising and dealing with financial criminality, and most of the solicitors I met and worked with had forgotten any of the criminal law they had ever studied in their first year at university. Few of them had any knowledge at all of the many criminal offences which make up the range of offences most often committed by the fat cat community!

So, with this thought in mind, I decided to look at the FSA financial crime team and see what qualifications they could muster between them to demonstrate their ability to deal with full-on criminals! I thought that they must at least have someone who may just have worked in the police or at SOCA or perhaps NCIS in the old days!

There is nothing secret about the names involved, they can be found on the FSA office chart which is freely available on the Web! I have used the edition dated September 2012 so I assume it is reasonably accurate.

Tracey McDermott has a recently been confirmed as the new Director of the Enforcement and Financial Crime Division. Ms McDermott is a former solicitor in a City practice and has been with the FSA since 2001. She was acting Head for a year after Margaret Cole, another lawyer, resigned, and she has had some successes in securing convictions for insider dealing, while other cases are pending.  She will also claim success for fining three small banks for failures in their Money Laundering administrative provisions, cases arising out of the FSA report of June 2011

However, her willingness to think outside the box in criminal matters and her faulty interpretation in this area of expertise was tested quite strongly when she gave evidence in front of the House of Commons Treasury Select Committee on 16th July 2012, investigating the LIBOR scandals.

She was pinned on the ropes by David Ruffley, Conservative M.P for Bury St Edmunds, who pressed her on why the FSA did not act as a prosecutor in the LIBOR case against Barclays. Ms McDermott replied that it was not the FSA’s area of expertise to bring such cases and that a discussion usually takes place with the relevant authorities who might bring a prosecution.

As an answer it revealed a lack of rigour, and indeed was not wholly factually correct.  David Ruffley revealed that in contrast to the FSA stance that it did not have the powers to pursue criminal investigations into such wrongdoing, some of the committee members had received senior counsel advice that that was not the case and that the FSA could indeed have pursued criminal probes under legislation including the 1968 Theft Act or the 2006 Fraud Act.

Ms McDermott replied that the regulator did not have a general power to prosecute or investigate criminal wrongdoing but that it could conceivably have prosecuted as a “private prosecutor”. This narrow interpretation of the FSA role was later criticised by the Select Committee who indicated that the FSA had an overriding responsibility to prevent crime in the financial sector, and that taking action against Barclays for this crime fell within that category.

Another public document which deserves greater scrutiny however is the FSA Financial Crime Newsletter dated October 2012, Issue 16.

In this document Ms McDermott gives a fairly laudatory report on the workings of her Division, for which, no doubt she may be forgiven, after all, if she doesn't, who will?  What is interesting however is the announcement that a gentleman called Bob Ferguson is taking extended leave from his role of Head of Department for Financial Crime and Intelligence, and who his replacement will be.

Mr Ferguson it transpires is an academic layer who holds a visiting professorship at Queen Mary College, University of London. He has been in regulation since joining the Securities and Investments Board in 1987, and has been a career regulator ever since. While he has a fine pedigree as a theoretical lawyer specialising in regulatory law, I can see no evidence from my researches that he has ever undertaken any criminal investigations or dealt with any financial criminals in his career. He has helped to formulate the FSA's handbook of Rules and Guidance and led on the development of the FSA Principles. For the last five years he has been involved in the build up of the FSA's financial crime and intelligence work, and we all know just how forceful has been the FSA response to financial crime in that time. I mean no disrespect to Mr Ferguson personally, no doubt his work has made a meaningful and significant contribution to deterring financial crime in the UK!

So, who is replacing him?

Step forward Sharon Campbell.

Now, I know very little about Ms Campbell and I can find very little out about her. For all I know, she may be highly skilled and trained in financial crime investigation and interdiction. She may have studied financial crime methodology as part of a criminology course at University. She may have served with distinction in a police force, MI5, H.M.R.C, or H.M Treasury, investigating serious financial crime and money laundering. She may have been part of the FATF specialising in AML interdiction best practice, and she may have huge competence in criminal psychology. She may have travelled abroad to assist foreign governments implement AML laws and regulations, she may have taught and mentored foreign police agencies and financial intelligence units.

She may have all or any of these skills, but if she has, we are not told. So we have to make do with such information as can be dredged up from publicly-available sources.

In her LinkedIn entry, Ms Campbell advises us that she attended Geoffrey Chaucer (school?) from 1981-1988.

From 2011 to September 2012 she was Head of the Department for Authorisations.

Her previous role was as Head of Department for the Central Analysis & Reporting Department.  

Prior to this, She was Manager of the Retail Intermediaries & Mortgage Sector team, mortgage intermediary supervisors and for leading a team with responsibility for a programme of large, cross-FSA initiatives.

Before joining the FSA, she had various roles with companies in the financial services industry, including sales and sales management, compliance and programme management roles for various companies, including HBOS and Zurich Financial Services.

In September 2012 she was appointed as Head of Financial Crime and Intelligence?

One of the issues which repeatedly raises itself during debate about those who work within the FSA (soon to be FCA), is the apparent degree of ease with which they are allowed to switch between roles, moving from one job to another.

A recent series of comments on the Money Market website demonstrate what ordinary members of the public feel about this game of musical chairs that goes on all the time in the FSA. When talking about another job change in the Department of Retail Enforcement, the following comments were posted.

'...No mention of salary or performance bonus structure. I have every faith in the remuneration committee to see him alright. It's not real money in Quangoland...'

'...Would have been nice to see the appointment go to someone outside the FSA  rather than from the same family. I think someone needs to open the windows at Canary Wharf to let in some fresh air, it must be quite thick by now with the smell of all those snouts in the trough...'

'...Have just sent an FOI request to the FSA as to whether the post was advertised externally, if there were any external candidates shortlisted. Basically it was a shoe-in for the trough merchants in-house...'

'...I think this is disgusting and just goes to show that re-arranging the letters above the door will not make any difference come January 13th. Same old people making the same old mistakes, brings a whole new meaning to desk share, must be fun being able to find a new desk when the music stops. " Oh look, I'm head of retail enforcement"...'

Of course, it may well be that these people are the best there is for the role on offer, and that no amount of diligent searching and public advertisement will identify someone who might just have similar, or dare we say it, 'better' skills and experience! Or perhaps it is as I said earlier, they just don't care very much about financial crime and can't be bothered to look!