UK Financial Services Regulatory Developments

This edition of London Update covers UK and EU

developments from 29 April to 30 June 2008.

UK Developments

FSA Publishes Market Watch 26

On 29 April, the Financial Services Authority (FSA)

published issue 26 of its Market Watch newsletter,

focusing on market conduct and transaction monitoring issues.

It provides an overview of the FSA's strategy for tackling

market abuse such as insider dealing through the use of

"credible deterrence." Market Watch 26

reiterates the FSA's enforcement approach and in particular

warns again that severe sanctions will be imposed by the FSA

for market abuse. As part of its anti-market abuse strategy,

the FSA will undertake a thematic review of FSA authorised

firms' policies in relation to the dissemination of false

market rumours.

Market Watch 26 also highlights that in 2006 and

2007, "informed price movements" preceded significant

announcements related to FTSE 350 companies and public

takeovers in 28.6% and 28.7% of cases respectively. This

represents an increase from 23.7% in 2005. The FSA considers

that these statistics do not necessarily correlate to the level

of insider dealing, as they may also indicate: (i) financial

analysts and the media correctly assessing which companies are

likely takeover targets; (ii) deliberate "strategic"

leaks of information by a company to position a deal in the

marketplace; or (iii) trades by "informed" traders

who picked up or derived information from the trades of

insiders.

www.fsa.gov.uk/pubs/newsletters/mw_newsletter26.pdf

FSA Considers Increasing Regulatory

Transparency

On 27 May, the FSA published a discussion paper, DP08/3

Transparency as a Regulatory Tool, setting out a proposed

code of practice to provide guidance as to the circumstances in

which the FSA may release information to the public. The

discussion paper recognises that the FSA operates within

certain constraints imposed by the UK Freedom of Information

Act 2000 and the Financial Services and Markets Act 2000. Under

these statutes, the FSA must safeguard confidential information

and follow due process before it can publish a statement which

amounts to a "public censure" of an FSA authorised

firm. However, the FSA believes that it should make information

public where it is legally able to do so and where it will help

the FSA to achieve its statutory objectives.

The discussion paper provides examples of the types of

information the FSA may consider publishing and draws a clear

distinction between simply making information available, which

the FSA concedes could cause confusion and potentially have a

negative impact, and publishing information in a way that makes

issues and practices clearer and therefore improves how

regulated markets function.

The deadline for comments is 29 August.

www.fsa.gov.uk/pubs/discussion/dp08_03.pdf

FSA Launches Consultation on Amending Enforcement

Procedures

On 27 May, the FSA published consultation paper CP08/10

Decision Procedure and Penalties Manual and Enforcement Guide

Review 2008. This follows the introduction of the

FSA's new Decision Procedure and Penalties (DEPP) Manual

and Enforcement Guide (EG) in July 2007 and is part of its

commitment to annually review such materials.

July 2008 2 The consultation paper includes a proposed new

chapter to the EG which would include the FSA's policy on

new enforcement powers, particularly with respect to anti-money

laundering and covered bonds. The FSA is seeking powers to

impose civil penalties for breaches of these regulations and it

intends to apply similar investigative procedures to money

laundering regulatory breaches as it does to other matters

under its jurisdiction.

The consultation paper includes a proposal to provide a

greater incentive for suspects to cooperate with the FSA. In

circumstances where misconduct is carried out by two or more

individuals acting together and one cooperates with the FSA,

this will be taken into account by the FSA when deciding

whether to prosecute or to bring market abuse proceedings. The

FSA proposes to amend the non-exhaustive list of factors it

will take into account when considering leniency to include

cooperation and assistance.

The consultation closes on 29 August.

www.fsa.gov.uk/pubs/cp/cp08_10.pdf

FSA Granted Limited Permission to Appeal Financial

Promotion Decision

On 29 May, the Financial Services and Markets Tribunal

(FSMT) published the written reasons for its decision of 23

April in respect of an application by the FSA for permission to

appeal FSMT judgments from September 2007 and March 2008. The

FSMT judgments were related to UK law firm Fox Hayes and its

approval of financial promotions.

The FSMT decision grants the FSA limited permission to

appeal certain points of law to the Court of Appeal. These

include the interpretation of what is "clear, fair and

misleading" under the FSA Rules and the interpretation of

conducting an investment business with "due skill, care

and diligence."

www.financeandtaxtribunals.gov.uk/Documents/decisions/FinancialServicesMarketsTribunal/058_FoxHayesPermissionToAppeal.pdf

FSA Launches Action to Close Down Illegal

Landbanking Scheme

On 4 June, the FSA announced that it had applied to the UK

High Court for an order to wind up the UK's largest

"landbanking" company, UKLI Limited (UKLI), for

operating as an illegal collective investment scheme, i.e., a

fund, and denying its investors protection for their money.

The FSA was granted an interim freezing and restraining

order against UKLI to protect assets for creditors, including

investors, and to prevent UKLI from continuing to operate as an

illegal fund.

www.fsa.gov.uk/pages/Library/Communication/PR/2008/052.shtml

Update on the Thematic Review of Controls Over

Inside Information

On 5 June, the FSA published Market Watch 27 as...