Enforcement in the civil and criminal courts
FSA litigation - civil and criminal powers
The Financial Services and Markets Act 2000 (FSMA) gives us powers to deal with misconduct by firms and individuals who are members of the regulated community. Some of these powers however, (for example those relating to market abuse) also apply to persons outside the regulated community. In addition we can take proceedings in the civil and criminal courts to deal with misconduct relating to regulated activities.
Civil action
We can issue civil proceedings in the High Court against firms and individuals, including those who are not members of the regulated community. There are several civil actions that we can pursue – the main ones include:
- asking the High Court to grant injunctions;
- ordering the payment of restitution; or
- granting insolvency orders.
Injunctions
These are orders which forbid a person from continuing or repeating certain types of misconduct. Injunctions could be sought for example, to:
- prevent a person from conducting regulated activities without authorisation;
- prevent a person from making misleading statements in breach of FSMA;
- stop unlawful financial promotions; or
- prevent a person from committing market abuse.
Injunctions are forward looking, in that they are designed to protect against a risk that a person may commit a breach at some point in the future.
Restitution
We can make an application to the Court if a person has breached a relevant requirement under the Act and profits have been generated or loss caused because of the breach. If we are successful then the Court can order that person to repay any profits and to compensate victims for any loss. For example, using this power we could ask the Court to order an authorised firm which had committed a rule breach to pay restitution to its customers. Or we could ask the Court to award compensation to victims of an unauthorised person who has made misleading statements in breach of the Act. In support of an application for restitution, we can ask the Court to grant asset-freezing orders to prevent defendants from disposing of their assets before the restitution is made.
Insolvency
We can apply to the Court for a winding-up order or an administration order against any firm which is or has been authorised or which is or has been carrying on regulated activities without the necessary authorisation (known as "breaching the general prohibition"). Similarly, for individuals, we can ask the Court for a bankruptcy order against an individual who is or has been approved or is or has been breaching the general prohibition. The Court can grant the winding-up, administration or bankruptcy orders, if it satisfied that the firm or person is insolvent. The Court also has the power to grant windingup orders against firms if it is 'just and equitable' to do so - even if the firm concerned is not insolvent.
Criminal proceedings
We have the power to prosecute several specific offences relating to regulated activities. Some of these are 'summary only' and can only be dealt with by the magistrates courts. Others are 'indictable' and can be heard in the Crown Court where a jury will decide the verdict. Yet other offences are 'either way' and may be heard in a magistrates court or the Crown Court. Some of the offences are punishable only by a fine, others carry a maximum penalty of seven years imprisonment. The offences cover a range of misconduct including:
- falsely claiming to be FSA authorised;
- carrying on a regulated activity without authorisation;
- making misleading statements to induce investments; and
- failing to co-operate with FSA investigations.
Other authorities also have the power to prosecute these offences, including the Crown Prosecution Service, Department for Business, Enterprise and Regulatory Reform, and the Serious Fraud Office. We regularly work with the police and other prosecuting authorities in criminal investigations.
Civil and criminal
In some cases it will be appropriate for us to take both civil and criminal action. For example, we could take civil proceedings to secure assets, to obtain compensation for victims, and to prevent any further misconduct. We could then follow these by criminal proceedings to enable the Courts to deal with an offender for the misconduct which has already taken place.