Insurance/Reinsurance Bulletin - July, 2009

THE FSA'S POWERS TO GATHER INFORMATION

By Kapil Dhir

Over the past 18 months, the FSA has demonstrated an increased

willingness to take strong action when financial institutions do

not comply with applicable regulatory standards. Our experience is

that the FSA's well-trailed shift to a more active enforcement

strategy with increasing financial penalties and prosecutions must

be treated with the utmost respect.

As a prelude to any enforcement action, the FSA will probably

have exercised its powers under Part XI of the Financial Services

and Market Act 2000 ("FiSMA") ("Information

Gathering and Investigations"). The FSA's ability to

require the provision of information and documents is central to

its investigative powers for the purpose of enforcement.

Collecting Information

Under Section 165 of FiSMA, the FSA can require authorised

persons to provide information or documents that are

"reasonably required" in connection with the exercise of

its functions (S165(4)). The FSA can specify the form that the

information is to take (S165(5)).

The scope of this information gathering power is greatly

enhanced because information can be required of any person who has

at any time been authorised or is "connected with" the

authorised person (for example another part of the authorised

person's group). Further, if the FSA (or an investigator - see

below) finds that a relevant document is in the possession of a

third party, the power to require information may also be exercised

against that third party (S175(1)).

Privileged and Protected Items

Under Section 413 of FiSMA, a person is not required to produce

"protected items". Protected items include communications

between a professional legal adviser and his client, or any person

representing his client (i) in connection with the giving of legal

advice to the client or (ii) in connection with, or in

contemplation of legal proceedings, and for the purpose of those

proceedings.

Who can Exercise the Power and How?

Note that the FSA can exercise its information gathering powers

in one of two ways: either directly by notice in writing to the

authorised person (S165(1)), or via an officer who has written

authority from the FSA (S165(3)). Information has to be provided

either before the end of a "reasonable period", or

without delay in such form as the FSA requires (S165(5)).

Overseas Regulators

Under Section 169 of FiSMA, the FSA can gather information where

it has received a request from an overseas regulator. The FSA has

the same powers to gather information as it has under Section 165.

The FSA can take account of factors which include whether the

country of the overseas regulator would give corresponding

assistance to the UK Regulatory Authority in deciding whether or

not to exercise its investigative powers in support of that

overseas regulator (S165(4)).

Skilled Persons Reports

Under Section 166, the FSA can by notice in writing require a

range of persons (including an authorised person, any other member

of that authorised person's group, a partnership of which the

authorised person is a member or any person who has at any relevant

time been any one of them) to provide the FSA with a report on any

matter in respect of which the FSA has required, or could require

the provision of information.

The person writing the report must be an appropriately skilled

person. Note that such reports by skilled persons will be for the

cost of the authorised person, and the authorised person is obliged

to provide all reasonable support to the skilled person. This power

is often used in the production of investigations into cash

management and cash balances.

Summary

In short, it is important to be aware of the wide scope of the

information gathering powers under FiSMA, the exercise of which is

likely to become even more frequent in the current climate.

COMPANIES ACT – THE FINAL IMPLEMENTATION

By Andrew Carpenter

1 October 2009 is the final implementation date for the

Companies Act 2006. A number of significant provisions will come

into force on that date. These include:

Rules...