Speech by Margaret Cole, Director of Enforcement, FSA
Annual Financial Crime Conference
27 April 2009
Good morning. It’s one of the occupational hazards of working in the Enforcement Division that we get to interview assorted fraudsters, con-men and insider dealers. So I found Professor Gill’s insights into the mind of the fraudster particularly interesting and I’ll make sure to feed these insights back to our investigation teams.
Last summer, at the FSA’s Enforcement Conference, in this very room, I set out our credible deterrence strategy. Today I want to remind you what credible deterrence is all about and update you on what we are doing to put it into operation. And I’ll be giving you some very tangible examples of the progress we’re making.
Credible deterrence is all about delivering outcomes that make a real difference to consumers and to markets. It means delivering results that make people sit up and pay attention. It’s about making people realise that they can suffer meaningful consequences if they break the law and if they don’t improve their standards of behaviour.
Delivering credible deterrence remains our focus in Enforcement and I don’t expect this to change any time soon. Our enforcement work is complemented by our supervisory strategy - an outcomes focused, intrusive, direct style of supervision. Last month our CEO, Hector Sants, spoke about credible deterrence and our intensive supervision model. He spoke of his determination to make people frightened of the FSA. Given my role at the FSA, you would expect me to share that determination – and I do. And I believe that our Enforcement team has the skill and determination to meet this challenge head on.
But this is not just a job for enforcement. We work with key strategic partners - many of whom are represented in this room. And we work with other areas of the FSA. Financial Crime and Intelligence, Markets and Enforcement work particularly closely on this joint venture. But delivering credible deterrence, and making people frightened of the FSA, is only a means to an end. That end is to change behaviour and we need to do that to fulfil our statutory objectives.
We want to change behaviour so that markets are clean, fair and orderly so that all investors can participate on a level playing field so that firms benefit from a low cost of equity and low transaction costs and so that investors and firms see London as a fair and dynamic financial centre.
And we also want to change behaviour so that retail customers get a fair deal, so that all firms, at all levels of the supply chain, treat their customers fairly, so that the man in the street can trust the financial services industry and so that criminals realise that attempting to defraud people involves high risks and offers minimal chances of reward.
I’m going to give you an overview of our progress in delivering credible deterrence and after that I’m going to focus on two areas of our credible deterrence agenda that are directly relevant to financial crime – these are our work to tackle insider dealing and market abuse where we are the lead prosecutor and our fight against share fraud.
Changing behaviour through credible deterrence is a long term strategy. The history, culture and traditions of financial services in the City stretch back to the late 17th century. The criminalisation of insider dealing is much more recent. More than 300,000 people are employed in financial services in London alone. Changing behaviour is not a walk in the park and we are realists, we do not expect overnight success. But we are determined to change behaviour using all the tools and levers available to us.
Over the last 12 months we’ve demonstrated that we’re willing to take on tough challenges and use all our powers – civil, criminal and administrative – to deliver our mandate.
Just last month, we secured a conviction in our first ever criminal insider dealing trial.
We challenged a Tribunal decision in the Court of Appeal for the first time, and achieved a resounding victory.
And last year, we imposed a record amount in financial penalties – over £27 million. We prohibited a record number of individuals. And we cancelled a record number of firms’ permissions.
Firsts and record results make good headlines. Those of you who follow the media coverage of Enforcement activity will have noticed a marked change in tone. Newspaper headlines such as “FSA gets tough” or “Financial watchdog shows its teeth” or “FSA hits insider trading” are typical of the tone of reporting on FSA Enforcement now, in marked contrast to a few years ago.
We are interested in results and headlines because of the demonstration effect. By getting these tough public outcomes, we are changing the perception of FSA as an enforcer.
We’ve made tangible progress in delivering credible deterrence. But expectations are higher than ever before and there are tough challenges ahead. Nowhere is this more true than in the first area I want to focus attention on today – tackling market abuse.
Insider dealing is a serious economic crime. And we aren’t the only ones to think that. Here are the words of Judge Testar, summing up at our recent insider dealing trial:
“This is not a victimless crime - this is a crime which does undermine confidence in the integrity of the market, and this is a confidence which is of great importance to the economic welfare of the community as a whole.
And he went to say:
“In addition, it does seem to me that the public are entitled to be angry if people who are in possession of inside information treat that position as a license to print a substantial amount of money.”
Less than a year ago, I appeared, with Hector Sants and our former Chairman Callum McCarthy, before the Treasury Select Committee. We were asked whether we felt that the City of London takes market abuse seriously enough. Our response was “no”. We took that opportunity to renew our commitment to get the City to take the subject more seriously.
That’s why we will continue with the plan we started around 3 years ago of bringing criminal prosecutions for insider dealing alongside civil actions for market abuse. Because we are determined that criminals in suits masquerading as city professionals will be seen for what they are – and will face serious consequences.
We want to create an environment where making a quick buck off the back of confidential information is seen as cheating, morally reprehensible and socially unacceptable and, most importantly, it’s a serious crime for which you can go to prison.
Eleven months on from the Treasury Select Committee I’m pleased to say that we’ve made real progress.
Last month, Christopher McQuoid, a solicitor, and his father-in-law, James Melbourne were found guilty of insider dealing. Both were sentenced to eight months imprisonment. McQuoid’s sentence began immediately and he is now behind bars.
The facts may appear straightforward to the casual observer:
Annual Financial Crime Conference
27 April 2009
Good morning. It’s one of the occupational hazards of working in the Enforcement Division that we get to interview assorted fraudsters, con-men and insider dealers. So I found Professor Gill’s insights into the mind of the fraudster particularly interesting and I’ll make sure to feed these insights back to our investigation teams.
Last summer, at the FSA’s Enforcement Conference, in this very room, I set out our credible deterrence strategy. Today I want to remind you what credible deterrence is all about and update you on what we are doing to put it into operation. And I’ll be giving you some very tangible examples of the progress we’re making.
Credible deterrence is all about delivering outcomes that make a real difference to consumers and to markets. It means delivering results that make people sit up and pay attention. It’s about making people realise that they can suffer meaningful consequences if they break the law and if they don’t improve their standards of behaviour.
Delivering credible deterrence remains our focus in Enforcement and I don’t expect this to change any time soon. Our enforcement work is complemented by our supervisory strategy - an outcomes focused, intrusive, direct style of supervision. Last month our CEO, Hector Sants, spoke about credible deterrence and our intensive supervision model. He spoke of his determination to make people frightened of the FSA. Given my role at the FSA, you would expect me to share that determination – and I do. And I believe that our Enforcement team has the skill and determination to meet this challenge head on.
But this is not just a job for enforcement. We work with key strategic partners - many of whom are represented in this room. And we work with other areas of the FSA. Financial Crime and Intelligence, Markets and Enforcement work particularly closely on this joint venture. But delivering credible deterrence, and making people frightened of the FSA, is only a means to an end. That end is to change behaviour and we need to do that to fulfil our statutory objectives.
We want to change behaviour so that markets are clean, fair and orderly so that all investors can participate on a level playing field so that firms benefit from a low cost of equity and low transaction costs and so that investors and firms see London as a fair and dynamic financial centre.
And we also want to change behaviour so that retail customers get a fair deal, so that all firms, at all levels of the supply chain, treat their customers fairly, so that the man in the street can trust the financial services industry and so that criminals realise that attempting to defraud people involves high risks and offers minimal chances of reward.
I’m going to give you an overview of our progress in delivering credible deterrence and after that I’m going to focus on two areas of our credible deterrence agenda that are directly relevant to financial crime – these are our work to tackle insider dealing and market abuse where we are the lead prosecutor and our fight against share fraud.
Changing behaviour through credible deterrence is a long term strategy. The history, culture and traditions of financial services in the City stretch back to the late 17th century. The criminalisation of insider dealing is much more recent. More than 300,000 people are employed in financial services in London alone. Changing behaviour is not a walk in the park and we are realists, we do not expect overnight success. But we are determined to change behaviour using all the tools and levers available to us.
Over the last 12 months we’ve demonstrated that we’re willing to take on tough challenges and use all our powers – civil, criminal and administrative – to deliver our mandate.
Just last month, we secured a conviction in our first ever criminal insider dealing trial.
We challenged a Tribunal decision in the Court of Appeal for the first time, and achieved a resounding victory.
And last year, we imposed a record amount in financial penalties – over £27 million. We prohibited a record number of individuals. And we cancelled a record number of firms’ permissions.
Firsts and record results make good headlines. Those of you who follow the media coverage of Enforcement activity will have noticed a marked change in tone. Newspaper headlines such as “FSA gets tough” or “Financial watchdog shows its teeth” or “FSA hits insider trading” are typical of the tone of reporting on FSA Enforcement now, in marked contrast to a few years ago.
We are interested in results and headlines because of the demonstration effect. By getting these tough public outcomes, we are changing the perception of FSA as an enforcer.
We’ve made tangible progress in delivering credible deterrence. But expectations are higher than ever before and there are tough challenges ahead. Nowhere is this more true than in the first area I want to focus attention on today – tackling market abuse.
Insider dealing is a serious economic crime. And we aren’t the only ones to think that. Here are the words of Judge Testar, summing up at our recent insider dealing trial:
“This is not a victimless crime - this is a crime which does undermine confidence in the integrity of the market, and this is a confidence which is of great importance to the economic welfare of the community as a whole.
And he went to say:
“In addition, it does seem to me that the public are entitled to be angry if people who are in possession of inside information treat that position as a license to print a substantial amount of money.”
Less than a year ago, I appeared, with Hector Sants and our former Chairman Callum McCarthy, before the Treasury Select Committee. We were asked whether we felt that the City of London takes market abuse seriously enough. Our response was “no”. We took that opportunity to renew our commitment to get the City to take the subject more seriously.
That’s why we will continue with the plan we started around 3 years ago of bringing criminal prosecutions for insider dealing alongside civil actions for market abuse. Because we are determined that criminals in suits masquerading as city professionals will be seen for what they are – and will face serious consequences.
We want to create an environment where making a quick buck off the back of confidential information is seen as cheating, morally reprehensible and socially unacceptable and, most importantly, it’s a serious crime for which you can go to prison.
Eleven months on from the Treasury Select Committee I’m pleased to say that we’ve made real progress.
Last month, Christopher McQuoid, a solicitor, and his father-in-law, James Melbourne were found guilty of insider dealing. Both were sentenced to eight months imprisonment. McQuoid’s sentence began immediately and he is now behind bars.
The facts may appear straightforward to the casual observer:
- McQuoid was the general counsel at TTP Communications.
- In May 2006, he was told in confidence that Motorola was planning to take over the company.
- Two days before the takeover was made public, his father-in-law,
- Melbourne bought 153,824 TTP shares at 13 pence a share.
- Melbourne had not dealt in any shares recently and he had never before bought TTP shares. On 1 June, the takeover was announced at an agreed share price of 45 pence.
- As a result of the price increase, Melbourne made a profit of £48,919.20.
- Three months later, Melbourne gave McQuoid a cheque for £24,459.60 – exactly half the profit made from the trade.
But insider dealing cases are notoriously tough to prosecute and there is no such thing as an easy win. These cases require careful and skilful investigation and preparation. We have demonstrated that we are prepared to commit the time and resource required and by achieving convictions and custodial sentences we believe we have sent a clear warning to others. McQuoid took advantage of the trust placed in him and has been found guilty of cheating the market. His punishment – an immediate custodial sentence – emphatically carries the message – this is serious criminal conduct.
The McQuoid/ Melbourne conviction resulted in considerable publicity, including a front page spread in the Independent under the headline Net tightens on insider trading. By raising the profile of insider dealing, by making it known that cheats will be punished, we are able to send a strong message.
But this case, our first insider dealing criminal prosecution to reach trial, is just the first step on this particular journey. There will be other prosecutions and more trials. You will understand that I am limited in what I can say about our pipeline cases. But it’s a matter of public record that we have three other criminal cases up and running. More will follow that are not yet in the public domain.
Our pipeline of cases include investigations into serious organised crime. We have made it a priority to tackle business professionals, repeat offenders and organised rings. We do also expect to pursue some cases of “opportunistic” abuse, especially where those involved are, because of their profession or role, committing a serious breach of trust.
In recent times we have also conducted some major searches and arrests targeting suspected organised insider dealing – including one last year and one in March this year. Investigations on these matters are ongoing. We have several large scale investigations under way at the moment. These matters take time. There is no guarantee of success and setbacks are inevitable. But that won’t deter us from the job we have to do. For me an important part of this is being proactive and being visible, being seen to be in the thick of the battle.
In parallel with our criminal investigations, we will use civil powers where appropriate. We will impose bigger financial penalties under the civil market abuse regime. Over the last year we imposed financial penalties on 10 individuals and 2 firms for market abuse. Earlier this year we fined Erik Boyen, a Belgian based private investor, £175,000, for dealing in shares on the basis of inside information. And we fined Darwin Clifton £60,000, and his company Byron Holdings Ltd £86,000, for dealing in shares on the basis of inside information.
And just last month, the Tribunal upheld our decision to impose our largest market abuse penalty to date on Winterflood Securities, a market-making firm. Winterflood and two of its traders had played a pivotal role in an illegal share ramping scheme which created a distortion in the market for over 6 months. Winterflood were fined £4 million and the individuals £200,000 and £50,000. We believe fines of this magnitude send a strong message to market participants.
The last year has also seen us improve our capacity to tackle market abuse. We obtained a significant increase to the Enforcement budget – allowing us to launch a recruitment campaign for additional lawyers and investigators. We have appointed David Kirk, formerly Director of the Fraud Prosecution Service, as our Chief Criminal Counsel. We have enhanced and expanded our Digital Evidence capacity. And the FSA has invested significant resources in our transaction surveillance capacity – SABRE 2. We have also been successful in our request to the government to get the power to grant statutory immunities – to incentivise less culpable parties to come forward and give evidence against those who have a greater part in the wrongdoing.
So as you can see we are in good shape to tackle the challenges we face.
The fight against market abuse is directly relevant to our statutory objective to promote clean, orderly and fair markets. I’m now going to move on to the focus of this afternoon’s session – consumer protection and share fraud – an area of financial crime directly relevant to our consumer protection objective.
Like market abuse, unauthorised business is a criminal offence. Like market abuse, it falls directly within our statutory objectives. Like market abuse, it’s a key priority for the FSA.
Share fraud is a serious financial crime and it has severe consequences for its victims. In economic terms, the average loss reported to the FSA is £20,000. Individual losses can be much higher. This is a crime that leaves people in debt and stripped of their savings for retirement. This is a crime that affects affluent, experienced investors but the elderly are also particularly vulnerable. My colleague, Chris Pond, will be speaking later today about our work, in partnership with Age Concern and Help the Aged, to protect older people from financial scams. We have seen instances where share fraud has led to human tragedy - to suicide, depression and divorce. The emotional impact cannot be overstated.
Estimating the size of share fraud in the UK is difficult. We have heard estimates that range from a few tens of millions of pounds, up to a billion pounds.
Although the total size of the problem remains unquantified, we do know that we’re seeing larger frauds than ever before. We have opened 5 investigations in the last few months, involving ponzi, deposit taking and property collective investment schemes. Consumer losses across the 5 cases could total £170m.
In the current economic environment, we might expect to continue to uncover more unauthorised business frauds. Because of this we have taken steps to improve our capacity to focus on this area. In the Enforcement Division we are in the process of doubling our number of unauthorised business teams and establishing a specialised Unauthorised Business Department. We are actively recruiting now.
Where we find a firm operating in the UK, or more commonly, a UK firm that is helping an overseas fraudster, we have a number of powers at our disposal. We will act swiftly to freeze assets and restrain activities by injunction. We will then move to wind that firm up using insolvency powers. And where we can, we will make individuals bankrupt. We will also use our criminal powers where appropriate to bring prosecutions.
In February 2008, we successfully prosecuted an unauthorised stockbroker, Robin Radclyffe. Radclyffe operated an illegal collective investment scheme, made false and misleading statements to his clients and caused losses of £350,000. As he was not authorised, victims were unable to make a claim on the Financial Services Compensation Scheme. Radclyffe was sentenced to 15 months imprisonment.
Earlier this year we won an appeal against Fox Hayes – a Leeds-based firm of solicitors that used its status as an FSA-authorised firm to approve promotional material used by overseas boiler room operations to defraud consumers. Fox Hayes approved financial promotions for unregulated overseas companies. The overseas companies used the promotional material to sell shares illegally to 60 UK investors for about 30 million US dollars.
The Court of Appeal found that Fox Hayes broke FSA rules and increased the level of penalty imposed by the Tribunal from £146,000 to £950,000. This was our first ever appeal from a Tribunal decision. It shows our determination to tackle financial crime and share fraud, and it shows that we are prepared to stick to our guns and remain bold and resolute to achieve credible deterrence.
The examples of Radclyffe and Fox Hayes send a strong deterrence message to any firm or individual involved in unauthorised business in the UK, or any firm or individual prepared to assist overseas fraudsters. We can and will take tough action. We will send people to prison. We will impose large financial penalties. We will pursue cases all the way in order to achieve the right regulatory outcome.
We have other tactics to tackle share fraud. We aim to educate consumers to reduce the possibility of fraud. A recent initiative emerged from a conference not unlike the one we’re having today. One of our managers met a Canadian regulator, who had recently conducted a search warrant and had uncovered a list of 11,500 UK shareholders – a so called ‘suckers’ list. We wrote to every shareholder listed warning them that they were in danger of share fraud and advising them on how to protect themselves.
Sometimes we can also secure consumer redress. Earlier this year we obtained a Court Order which meant that over £1m was returned to victims of a share scam.
Our increased resource will allow us to do more on deterring share fraudsters – it will allow us to take criminal action against UK based fraudsters and civil action against firms, such as Fox Hayes, who assist fraudsters. It will also allow us to do more on disruption and consumer education, and hopefully to return more money to victims.
But even with increased resource we can’t fight this battle on our own. We need the industry and our strategic partners to help us deliver credible deterrence. We work with City of London Police on Operation Archway – the national intelligence reporting system for share fraud. We work with banks to tighten up payment systems to provide an additional defence against share fraud. And we work with other key agencies, including the NFSA and the SFO, to ensure we have a joined up approach.
Sometimes the right approach is to encourage another prosecutor to take the lead and to support that prosecutor with our investigative work. That might very well be the case where the criminality we find goes wider than our direct remit. We very often hand cases over to the SFO or other agencies as the most important thing is to make sure the job gets done by the prosecuting authority best placed to do it.
The benefits of working collaboratively with other agencies can be seen in our work on mortgage fraud. We are not, and do not seek to be the responsible agency for prosecuting mortgage fraud. However, it has a serious impact on markets and on consumers and is directly relevant to our statutory objectives. Credible deterrence in this area is a shared responsibility. Mortgage lenders provide Financial Crime and Intelligence Division with intelligence on suspect brokers. We use our enforcement powers to investigate and take regulatory action – we’ve taken 40 people out of the market and issued fines totalling over half a million pounds over the last year. We have regular discussions with the police, we refer brokers to them and we co-operate and assist with their criminal investigations. By working together, we can deliver credible deterrence.
So, to conclude by returning to our overall aim and my messages for today. Credible deterrence is a means to an end. Making people frightened of the FSA is a means to an end. The end is to change behaviour so that markets are clean, fair and orderly and so that retail customers get a fair deal.
We recognise that changing behaviour will be difficult. But I firmly believe that we have the skills, bravery and resilience to succeed. We are visible in the arena and are ready for the challenges we face.
Finally, I would urge anyone who remains in doubt about how serious we are about this to look at the fate of McQuoid, Radcliffe or Fox Hayes and its Partners. Actions always speak louder than words and we are visibly demonstrating that the FSA means business.
The McQuoid/ Melbourne conviction resulted in considerable publicity, including a front page spread in the Independent under the headline Net tightens on insider trading. By raising the profile of insider dealing, by making it known that cheats will be punished, we are able to send a strong message.
But this case, our first insider dealing criminal prosecution to reach trial, is just the first step on this particular journey. There will be other prosecutions and more trials. You will understand that I am limited in what I can say about our pipeline cases. But it’s a matter of public record that we have three other criminal cases up and running. More will follow that are not yet in the public domain.
Our pipeline of cases include investigations into serious organised crime. We have made it a priority to tackle business professionals, repeat offenders and organised rings. We do also expect to pursue some cases of “opportunistic” abuse, especially where those involved are, because of their profession or role, committing a serious breach of trust.
In recent times we have also conducted some major searches and arrests targeting suspected organised insider dealing – including one last year and one in March this year. Investigations on these matters are ongoing. We have several large scale investigations under way at the moment. These matters take time. There is no guarantee of success and setbacks are inevitable. But that won’t deter us from the job we have to do. For me an important part of this is being proactive and being visible, being seen to be in the thick of the battle.
In parallel with our criminal investigations, we will use civil powers where appropriate. We will impose bigger financial penalties under the civil market abuse regime. Over the last year we imposed financial penalties on 10 individuals and 2 firms for market abuse. Earlier this year we fined Erik Boyen, a Belgian based private investor, £175,000, for dealing in shares on the basis of inside information. And we fined Darwin Clifton £60,000, and his company Byron Holdings Ltd £86,000, for dealing in shares on the basis of inside information.
And just last month, the Tribunal upheld our decision to impose our largest market abuse penalty to date on Winterflood Securities, a market-making firm. Winterflood and two of its traders had played a pivotal role in an illegal share ramping scheme which created a distortion in the market for over 6 months. Winterflood were fined £4 million and the individuals £200,000 and £50,000. We believe fines of this magnitude send a strong message to market participants.
The last year has also seen us improve our capacity to tackle market abuse. We obtained a significant increase to the Enforcement budget – allowing us to launch a recruitment campaign for additional lawyers and investigators. We have appointed David Kirk, formerly Director of the Fraud Prosecution Service, as our Chief Criminal Counsel. We have enhanced and expanded our Digital Evidence capacity. And the FSA has invested significant resources in our transaction surveillance capacity – SABRE 2. We have also been successful in our request to the government to get the power to grant statutory immunities – to incentivise less culpable parties to come forward and give evidence against those who have a greater part in the wrongdoing.
So as you can see we are in good shape to tackle the challenges we face.
The fight against market abuse is directly relevant to our statutory objective to promote clean, orderly and fair markets. I’m now going to move on to the focus of this afternoon’s session – consumer protection and share fraud – an area of financial crime directly relevant to our consumer protection objective.
Like market abuse, unauthorised business is a criminal offence. Like market abuse, it falls directly within our statutory objectives. Like market abuse, it’s a key priority for the FSA.
Share fraud is a serious financial crime and it has severe consequences for its victims. In economic terms, the average loss reported to the FSA is £20,000. Individual losses can be much higher. This is a crime that leaves people in debt and stripped of their savings for retirement. This is a crime that affects affluent, experienced investors but the elderly are also particularly vulnerable. My colleague, Chris Pond, will be speaking later today about our work, in partnership with Age Concern and Help the Aged, to protect older people from financial scams. We have seen instances where share fraud has led to human tragedy - to suicide, depression and divorce. The emotional impact cannot be overstated.
Estimating the size of share fraud in the UK is difficult. We have heard estimates that range from a few tens of millions of pounds, up to a billion pounds.
Although the total size of the problem remains unquantified, we do know that we’re seeing larger frauds than ever before. We have opened 5 investigations in the last few months, involving ponzi, deposit taking and property collective investment schemes. Consumer losses across the 5 cases could total £170m.
In the current economic environment, we might expect to continue to uncover more unauthorised business frauds. Because of this we have taken steps to improve our capacity to focus on this area. In the Enforcement Division we are in the process of doubling our number of unauthorised business teams and establishing a specialised Unauthorised Business Department. We are actively recruiting now.
Where we find a firm operating in the UK, or more commonly, a UK firm that is helping an overseas fraudster, we have a number of powers at our disposal. We will act swiftly to freeze assets and restrain activities by injunction. We will then move to wind that firm up using insolvency powers. And where we can, we will make individuals bankrupt. We will also use our criminal powers where appropriate to bring prosecutions.
In February 2008, we successfully prosecuted an unauthorised stockbroker, Robin Radclyffe. Radclyffe operated an illegal collective investment scheme, made false and misleading statements to his clients and caused losses of £350,000. As he was not authorised, victims were unable to make a claim on the Financial Services Compensation Scheme. Radclyffe was sentenced to 15 months imprisonment.
Earlier this year we won an appeal against Fox Hayes – a Leeds-based firm of solicitors that used its status as an FSA-authorised firm to approve promotional material used by overseas boiler room operations to defraud consumers. Fox Hayes approved financial promotions for unregulated overseas companies. The overseas companies used the promotional material to sell shares illegally to 60 UK investors for about 30 million US dollars.
The Court of Appeal found that Fox Hayes broke FSA rules and increased the level of penalty imposed by the Tribunal from £146,000 to £950,000. This was our first ever appeal from a Tribunal decision. It shows our determination to tackle financial crime and share fraud, and it shows that we are prepared to stick to our guns and remain bold and resolute to achieve credible deterrence.
The examples of Radclyffe and Fox Hayes send a strong deterrence message to any firm or individual involved in unauthorised business in the UK, or any firm or individual prepared to assist overseas fraudsters. We can and will take tough action. We will send people to prison. We will impose large financial penalties. We will pursue cases all the way in order to achieve the right regulatory outcome.
We have other tactics to tackle share fraud. We aim to educate consumers to reduce the possibility of fraud. A recent initiative emerged from a conference not unlike the one we’re having today. One of our managers met a Canadian regulator, who had recently conducted a search warrant and had uncovered a list of 11,500 UK shareholders – a so called ‘suckers’ list. We wrote to every shareholder listed warning them that they were in danger of share fraud and advising them on how to protect themselves.
Sometimes we can also secure consumer redress. Earlier this year we obtained a Court Order which meant that over £1m was returned to victims of a share scam.
Our increased resource will allow us to do more on deterring share fraudsters – it will allow us to take criminal action against UK based fraudsters and civil action against firms, such as Fox Hayes, who assist fraudsters. It will also allow us to do more on disruption and consumer education, and hopefully to return more money to victims.
But even with increased resource we can’t fight this battle on our own. We need the industry and our strategic partners to help us deliver credible deterrence. We work with City of London Police on Operation Archway – the national intelligence reporting system for share fraud. We work with banks to tighten up payment systems to provide an additional defence against share fraud. And we work with other key agencies, including the NFSA and the SFO, to ensure we have a joined up approach.
Sometimes the right approach is to encourage another prosecutor to take the lead and to support that prosecutor with our investigative work. That might very well be the case where the criminality we find goes wider than our direct remit. We very often hand cases over to the SFO or other agencies as the most important thing is to make sure the job gets done by the prosecuting authority best placed to do it.
The benefits of working collaboratively with other agencies can be seen in our work on mortgage fraud. We are not, and do not seek to be the responsible agency for prosecuting mortgage fraud. However, it has a serious impact on markets and on consumers and is directly relevant to our statutory objectives. Credible deterrence in this area is a shared responsibility. Mortgage lenders provide Financial Crime and Intelligence Division with intelligence on suspect brokers. We use our enforcement powers to investigate and take regulatory action – we’ve taken 40 people out of the market and issued fines totalling over half a million pounds over the last year. We have regular discussions with the police, we refer brokers to them and we co-operate and assist with their criminal investigations. By working together, we can deliver credible deterrence.
So, to conclude by returning to our overall aim and my messages for today. Credible deterrence is a means to an end. Making people frightened of the FSA is a means to an end. The end is to change behaviour so that markets are clean, fair and orderly and so that retail customers get a fair deal.
We recognise that changing behaviour will be difficult. But I firmly believe that we have the skills, bravery and resilience to succeed. We are visible in the arena and are ready for the challenges we face.
Finally, I would urge anyone who remains in doubt about how serious we are about this to look at the fate of McQuoid, Radcliffe or Fox Hayes and its Partners. Actions always speak louder than words and we are visibly demonstrating that the FSA means business.
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