21 January 2004

"City regulator is ready to crack the whip - UK

FT.com "City regulator is ready to crack the whip:

By Charles Pretzlik

When Callum McCarthy took over as chairman of the Financial Services Authority last year, he was handed the strongest whip in financial regulation.

Six months on, there are signs he intends to crack it.

Buried in the 103 pages of the latest edition of the FSA's annual Financial Risk Outlook are a series of warning shots to the financial markets and strong hints about where the regulator plans to turn its attention.

In the wholesale markets, areas that are singled out include: hedge funds, the commodity markets, investment banks that create special purpose vehicles, credit derivatives and fund managers who have allowed some investors to carry out improper market timing strategies.

In the retail market, the FSA warns that many life assurers are still weak and it threatens to clamp down on malpractice in mortgage self-certification, where borrowers do not need to prove their income levels.

For good measure, there are also warnings about the extent of financial crime, the distractions presented by huge volumes of new regulations, and the increased threat of terrorism.

The tome amounts to a 2004 agenda for the FSA's new leadership, which has already signalled a determination to become more vigorous in pursuing miscreants in the financial markets.

Financial Crime and terrorism

The trend towards moving operations off-shore could increase financial institutions' vulnerability to terrorism, the FSA says.

It also says: "We continue to see increasing numbers of advance-fee frauds and 'boiler room' schemes. Staff fraud in financial institutions and identity theft have risen in prominence, arising partly from the rapid growth in electronic transfer of personal information." Additional reporting by Lina Saigol, Elizabeth Rigby, Kevin Morrison and Jane Croft"

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