Insider trading rises as FSA bosses receive record bonus

Could this prove the FSA's insider trading witch-hunt isn't working?

by
Last Updated: 19 Jun 2012

Insider trading has risen to its worst in six years, according to new figures from City regulator the Financial Services Authority. Of the 144 takeover bids launched in the year to April, the FSA identified ‘suspicious activity’ before 44. The number’s up by almost a third since 2008 – in fact, last time it was this high was 2004. But while the FSA’s new, aggressive tactics to prevent insider trading don’t seem to be working, the regulator’s directors have taken the opportunity to award themselves a juicy bonus – which has managed to get backs up in the City…

The FSA imposed 46 fines on City firms last year, making a total of £33.6m, as well as publishing 56 prohibitions. Having been criticised for its ‘light touch’ approach to regulation before the financial crisis, the regulator says it’s cracked down on traders - but despite the fines, it’s only managed to make four convictions, indicating a tactical rethink might be a good idea in the near future.

Also mentioned in the regulator’s annual report was the news outgoing CEO Hector Sants was awarded a bonus of £108,000 this year (which he admittedly donated to charity), despite the rise in insider trading. Sants didn’t exactly have empty pockets in the first place: with a salary of almost three quarters of a million pounds (19% up on the previous year), he rather bucked the trend at the rest of the FSA, where the average salary fell from £78,000 to £76,000. Still: not exactly minimum wage, is it? Although in the grand scheme of City bonuses, Sants’ is a drop in the ocean…

Reports from the City indicate the rise in fines ‘acted like a red rag’ to some firms. Some companies have accused the FSA of going for ‘softer’ targets so it can be seen to be doing something in the wake of the recession. Faced by increasing fines and more stringent regulation, some businesses are struggling: the boss of one told City AM the fines are now ‘out of control’.

The FSA, though, maintains the fines are needed to keep a check on traders. ‘In order to secure attention, fines, like medicine, have to be administered in ever larger doses,’ Simon Morris, a lawyer at CMS Cameron McKenna, said. But the regulator admitted insider trading cases are difficult to prove, pointing out that it could just be down to ‘accurate analysis’ by speculators and the press. Nice and vague, then…

To make things worse for George Osborne, who’s faced with attempting to mitigate the impact of the results and find a replacement for Sants – all for an organisation he wanted to scrap in the first place; Sally Dewar, the FSA’s head of risk, has announced her resignation. One of the strongest candidates for Sants’ job and the regulator’s top female member of staff, Dewar’s loss will come as a blow to Osborne.

That said, if the Lib Dems hadn’t got their way, Osbourne would have abolished the FSA, so he wouldn’t be in this position. So if the City is looking for someone to blame for rocketing fines and enormous bonuses next year, it looks like all fingers will be pointing at Nick Clegg.

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