This guide is based on UK law as at 1st February 2010, unless otherwise stated. It is part of a series on the FSA and Securities Regulation.
When investigating cases the FSA has a number of statutory powers to assist it.
It can obtain information that is relevant to the investigation; it can, in some circumstances, detain people for questioning and call on the police to arrest suspects. Those who are seen to impede or obstruct its investigations can face stiff penalties.
The FSA says that it will make it clear in each case whether it is using its statutory powers or not. Where it is not, there is no obligation to produce documents or to attend an interview or to give answers when questioned.
Use of the statutory powers is, however, standard practice. In most cases, parties will be compelled to produce documents and answer questions in interview – even if they are willing to cooperate voluntarily.
Consistent use of its statutory powers is, the FSA believes, fairer and more transparent and efficient for all concerned.
So finding oneself on the wrong end of the FSA’s use of its powers of compulsion does not mean that you are suspected of anything or viewed as being hostile; even innocent witnesses are likely to be subject to this standard practice.
But the FSA is equally clear that ready cooperation in attending an interview and answering questions may well result in a more lenient penalty should misconduct be found. Where the statutory powers are used, a failure to attend an interview, as Christopher Westcott found (see the case of Christopher Wescott, described below), will be a contempt of court punishable by a fine, imprisonment or both, as will a failure to answer questions or to produce documents. There is, in effect, no right to silence. And there is no equivalent to the US citizen’s right ‘to plead the fifth’ – that is, to protect yourself against self-incrimination.
The FSA’s powers are undoubtedly extensive, but it says it takes a risk-based approach and will only pursue those cases that are in line with its overall priorities and where it is important to send out a message to the market or where breaches are particularly serious.
In October 2003, Christopher Westcott, owner of Durham-based company Cathedral Funeral Services, was given a 28-day suspended prison sentence by the High Court for failing to cooperate with an FSA investigation. The authority had been investigating Westcott, suspected of selling funeral plans without proper authorisation and using a number of aliases to do so, since April 2002. His sentence was suspended only on the condition that he subsequently complied with the FSA’s requirements.
In 2006, Westcott was jailed for three-and-a-half years for theft related to the same funeral policy scam.
A party under investigation can, at any point, open settlement discussions with the FSA and so spare itself the time, expense and bad publicity of further investigation. The FSA gives credit in deciding penalties for early cooperation and acceptance of fault. So Wolfson Microelectronics had its fine discounted by 30 per cent because it agreed to an early settlement (Wolfson's case is among OUT-LAW's Cases on disclosure of price-sensitive information). In the Shell case (see OUT-LAW's Examples of market abuse), the fine of £17m would have been ‘significantly higher’, the FSA said, had it not been for the company’s high degree of cooperation. (Interestingly, though, Shell did not admit it was at fault.)
If, having made investigations, the FSA decides to pursue a matter, it will take it in the first instance to its Regulatory Decisions Committee (RDC). Staffed by current and recently retired City practitioners as well as by lay members, the RDC oversees the enforcement process; it examines cases and takes representations from parties under investigation. If the firm or individual concerned accepts the committee’s decision, it takes effect. If there is no acceptance, and the FSA issues a decision notice, the accused can refer the matter to the Financial Services and Markets Tribunal, an independent body run by the Tribunals Service, part of the Ministry of Justice. Tribunal hearings are conducted from scratch. They usually, however, take place in public – a fact that may argue in favour of settling the case with the FSA.