Financial Regulation: Learning the lessons of Maxwell

He told a securities industry conference:

The upcoming tenth anniversary of Robert Maxwells death has stimulated debate as to whether the City is now a cleaner place and whether the new regulatory system will be better able to respond to the challenges posed by an individual determined to circumvent rules and controls.

The DTI Inspectors report into the Maxwell Affair which was published earlier this year made many recommendations, targeted at a range of institutions. For our part, at the FSA, we have now completed a careful review of those which affect us. I presume others have done the same.

The inspectors draw attention, for example, to the importance of good communication between regulators. That was a fundamental reason for the creation of the FSA. We have now fully integrated the old regulators in managerial terms. And legal integration will come when the legacy arrangements for the nine predecessor regimes are superseded by the Financial Services and Markets Act on 1 December. We have also, as the inspectors recommend, tightened up our arrangements for co-operating with the criminal prosecuting authorities.

And, of course, there was regulatory action targeted at individual firms soon after the events themselves.

The report also comments on whistleblowing procedures in firms. We are serious about expecting firms to put internal whistleblowing procedures into place and wont hesitate to consider making rules under the FSM Act if the guidance we plan to issue in the New Year does not lead to the higher standards we want to see. And any evidence we get that a firm has acted to the detriment of an employee who has made a disclosure which is protected by whistleblowing legislation could call into question the fitness and propriety of the firm concerned and/or relevant members of the firm''s staff.

We will be taking forward one further specific recommendation from the Report - that the FSA should facilitate the production of Guidance setting out a statement of the respective duties and responsibilities of advisers and containing useful advice and examples of lessons that have been learnt - as part of our wider review of the listing regime announced earlier this year.

Another of the key recommendations of the DTI Report was the need to ensure that only fit and proper people manage regulated firms and that senior management has a firm grip on what is going on in the firm.

Our regulatory approach for financial services firms operating from N2 should help head off Maxwell-type behaviour in future. Our Approved Persons regime requires up to 180,000 people working in the financial services industry to be suitable for the job they are going to do. And firms will need to demonstrate they have effective oversight and control of their business, including adequate risk management arrangements. We firmly believe that good compliance and good risk management are most effectively promoted by tightly defined management structures which clearly allocate responsibilities to identified individuals.

The DTI inspectors also highlighted the expectations gap about the regulatory role and function. They found evidence that much of the City still does not clearly understand what the Listing Authority does and, equally important, does not cover. Our current review of the Listing Rules aims to make things clearer.

Notes for editors

1. Howard Davies was speaking at the Securities Houses Compliance Officers Group conference.

2. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

3. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.