‘Since I finished my degree in law I’ve worked mainly on the corporate side with ICI and most recently directing a charity, the Institute of Business Ethics. So this is my third career and I’m 57 years-old. That means I only have two years or so left before I retire – complying with the FSA retirement age of 60. Although our chairman, Howard Davies, is anti-ageist, and although we do in fact have the odd dinosaur who is still happily hunting here, I doubt whether I’ll still be here at 62.
I had never thought about being a regulator, but one day I got a call about this opportunity, and decided that, among other things, I really admired the quality of the people who work here. Also, I think the objectives of the job have similarities with what I had been doing before; I’m obsessed with corporate reputation, and corporate reputation is a major concern for the Financial Services Authority.
The challenges of this new position are, first, to oversee the integration of the UK Listing Authority becoming part of the FSA and independent of the London Stock Exchange, to which it belonged until May 2000. And second, to undertake a review of the listing rules we brought over from the LSE, and ensure the FSA uses its new disciplinary powers to promote clean and transparent markets.
I have to say, though, that when we left the LSE, we lost many good people. A lot of the more experienced staff left for various reasons – some thought it was a good moment to restart their careers, others didn’t want to work for the FSA, and some others just didn’t want to move to Canary Wharf. The first challenge, then, was really to build a new team. Now I’m heading a group of 75 people, most with at least two or three years experience as private accountants or lawyers. Most are quite young and I’m trying to encourage them to think about making careers in regulation. They work long hours here, but if you’re in the City you have to work even longer, and while it’s true you’re better rewarded in a private practice, what is the point of that if you have no other life?
I suppose it depends on what turns you on – if you want big bags of money, you don’t work for the FSA, but if you look for job satisfaction, here it is very high, because of the interesting and worthwhile work we do.
A closer image
One of the things we wanted to change when we arrived here was the UKLA’s image. We want people to see the authority as more accessible, more approachable than it used to be. We’re going out ourselves to visit our ‘customers’ and explain what we do.
And what is it that we do? Well, one of our aims is to improve the flow of information to shareholders by punishing the practice of selectively informing favored brokers’ analysts and fund managers to the disadvantage of smaller investors. The new market abuse regime also supports better corporate communications.
It has been said that these new rules are part of a campaign to levy fines and take scalps. While I’m not going to entirely convince anyone there isn’t any such campaign, there has definitely been an overreaction. We don’t take enforcement action against inconsequential breaches. Sure, there will undoubtedly be one or two high profile enforcement cases – after all, if everything worked perfectly it would be pointless to create a new regime.
As and when such cases come through, people will see where they need to draw the line on market abuse. At the moment, there is still a bit of confusion around what is acceptable and what is not. We don’t blame anyone for it – we are the first to accept that in practical terms there are some gray areas that need to be covered. For this reason, I threw a challenge to the UK Investor Relations Society: I asked them to come up with practicable guidelines on acceptable corporate communications. IRS director general Andrew Hawkins has accepted the challenge and they are already working on it.
Remember that before any significant case could end in a fine, there are a number of internal filters it would have to go through. These consist of a series of committees that review cases to decide whether they are sanctionable. Significant cases go first to the market conduct committee, then to the case referrals committee, and finally to the regulatory decisions committee for a decision. These decisions can also be appealed to an independent tribunal called the Financial Services and Markets Tribunal, appointed by the Lord Chancellor. So, as you can see, it’s a process with many checks and balances and no decision will be taken capriciously. I certainly can’t just say, ‘I don’t like this company or this director anymore and I’m going to fine them.’
Before a case ever goes that far we have the option of sending a private warning letter. So when the offense is not significant enough to deserve disciplinary penalties, we send the company a letter saying that if they do it again, action will be taken. It’s like a ‘yellow card’ for companies that have perhaps misunderstood some of the rules or have just received mistaken advice from advisors.
Competitive model
Along with helping to enforce new market abuse rules, we are also creating a more competitive information distribution system which will start on April 2 this year. We have already announced the first wave of primary information providers – Business Wire, RNS, NewsLink, Pims, and PR Newswire – and we eventually expect a few more service providers to qualify as Pips, though we’re more concerned about quality than about quantity.
Listed companies may expect this new model to bring lower fees, but I can’t guarantee that. All we can guarantee is that fees will be lower than they would have been if we hadn’t come down this route.
The main benefit of this competitive model is the ability to take advantage of new technology. I’m not knocking the LSE and RNS, but maybe in the past there were few incentives for them to offer higher quality in technology. All that will now change with the new system, which will benefit the LSE and RNS because they will need to be competitive, although they are probably at the top of the ladder just now.
Talking about IR
Investor relations in the UK is in good form compared to the rest of Europe. We asked PricewaterhouseCoopers to do a comparative study of listing regimes in the UK versus Europe, the US, Hong Kong and Australia, which included corporate communications. Especially at the largest companies, the status of the IR function seems to be more respected than it used to be. It’s a job with lots of responsibility, not just public relations with shareholders. I used to be concerned that investor relations officers might be young accountants who wanted to be seen and appreciated by directors and promoted into better rewarded positions. But IROs are now more senior people, with more credibility than they used to have a few years ago, and some are now at the board meetings contributing to decisions.
So IR in larger companies is quite healthy, though I’m less confident about smaller companies. Most small businesses rely on external help instead of having their own IROs, and I’m not sure that’s always a good thing.
In this context, I’m looking forward to seeing what the European Commission’s Financial Services Action Plan will produce. The EC wants to harmonize disclosure standards – not with a single regulator for everybody, but with common standards in areas like market abuse, investment services, prospectuses, and so on. The idea is to harmonize obligations and compliance rules in disclosure and reporting, although a draft directive has not yet been produced. This is a controversial issue across Europe, but in the UK we have nothing to worry about because the new standards are actually inspired by the UK. The one innovation they’re proposing that concerns UK business is mandatory quarterly reporting, but in terms of disclosure of price-sensitive information, the proposed system is very similar to what we already have.
Indeed, all the evidence points to the fact that we have better discipline and better rules than in many other countries – even better than I expected when I took on this new job. Nevertheless, we cannot be complacent and this year we will embark on a fundamental review of our listing regime to ensure it’s modern and fully competitive.’
