UK: Dispute Resolution Group Regulatory Update - November 2010

Last Updated: 5 November 2010
Article by Julian Connerty


Since our last newsletter, regulatory reform of the financial sector has continued at a rapid pace. Over the summer, we saw the Coalition Government announce reforms to the current system of financial services regulation. We have set out below the major changes proposed.

We have also entered a period of tightening regulation in the EU and US, with a common understanding that regulation between these markets will be more effective if the systems are symbiotic. In this newsletter, we discuss reforms in the EU and US, and the ways in which regulation is being mutually influenced.

The Bribery Act 2010 is set to enter into force in April 2011. We included in our previous newsletter some practical guidance regarding procedures that organisations can put in place to avoid prosecution for bribery. In this newsletter, we discuss the Guidance currently under consultation by the Ministry of Justice.

Bribery Act 2010 – Ministry of Justice Consultation

The Ministry of Justice has produced draft Guidance regarding the procedures commercial organisations can put in place to avoid committing an offence under the Bribery Act. The draft Guidance annexed to the Consultation Paper can be found by clicking here.

The Ministry of Justice has invited comments on this Guidance before the consultation period closes on 8 November 2010. Comments can be made directly through the Ministry of Justice by clicking here. Clyde & Co is also compiling a detailed response to the consultation. If you would like to complete our anonymous survey please click on this link. We expect the finalised guidance to be published in January 2011.

In light of the widely drafted offences created under the Act, including the new corporate offence of failing to prevent bribery, it will be essential for organisations to ensure high levels of compliance. Furthermore, the scope of the Act extends to the global activities of organisations doing business in the UK. Therefore, this is likely to result in a large number of organisations falling within the scope of the Act.

The Guidance will be useful for organisations in determining the procedures necessary for compliance. It will remain Principles based, as with the FSA regulations, and this will give the Serious Fraud Office (SFO) maximum scope for interpretation and enforcement. Many anticipate that the question of whether an organisation has adequate procedures in place to prevent bribery will be a question for the courts to decide.

New Government set to reform Financial Services Regulation

Following the dawning of a new era in British government, speculation regarding financial services reform has been rife. There was a great deal of uncertainty as to whether the tripartite system of regulation between the Bank of England, the Treasury and the Financial Services Authority would be abolished in favour of greater regulation by the Bank of England.

The answer was provided in George Osborne's speech at Mansion House on 16 June 2010. Despite the FSA cracking down on the City, and issuing a stream of fines, this was too little too late in the eyes of the new Government. Plans were outlined to take power away from the FSA, a Labour creation, and to move power back to the Bank of England. The suggested reforms are currently under a period of review. Below is a brief summary of the major changes:

  • The Bank of England will be placed in charge of a Prudential Regulation Authority (the PRA), which will be responsible for regulating insurers, investment banks and deposit taking organisations. The PRA will be chaired by the Governor of the Bank of England;
  • A Consumer Protection and Markets Authority (CPMA) will be established to take on the FSA's role in consumer protection and conduct regulation, overseeing wholesale market regulation, and consumer protection;
  • The CPMA will also take on the FSA's responsibility for the Financial Ombudsman Service, and will oversee a new body, the Consumer Financial Education Body (CFEB);
  • Responsibility for consumer credit will be transferred from the Office of Fair Trading to the CPMA;
  • A single agency will be created to tackle serious economic crime;
  • Hector Sants, current CEO of the FSA, will take on the role of CEO of the PRA.

It is unclear what substantial effect these changes will have on the financial regulatory system, but it is clear that the Coalition Government is trying to make its mark. In a letter to the Chancellor, the Financial Reporting Council called for a separate regulatory body to be established, with the sole function of regulating securities markets (which will be something like the SEC).

The British Banking Association has also raised concerns that too much weight is being given to consumer protection, and not enough to retail and wholesale markets. In the current proposals, this function would be carried out by one body. The period of consultation regarding the reforms closed on 18 October 2010, and we now await the outcome of this consultation.

FSA goes public

The FSA has been granted new powers to publicise decision notices as well as final notices. This allows the FSA to publicise enforcement actions at the decision notice stage, rather than waiting for the final notice, which typically happens after appeals to the Tribunal, and a period of lengthy delays.

This change will ensure that publicity is timely and relevant and the FSA hopes it will serve as an added deterrent for firms. However, there are serious implications as firms under investigation may now face bad publicity even before the final decision has been made. Given the scope for considerable reputational damage, the FSA will need to get its facts straight to avoid tarnishing a firm's reputation without good reason.

Client money – largest ever fine – JP Morgan

The protection of client money has been in focus lately with the creation of a specialist client asset unit, intensive supervisory work, and firms from a range of industry sectors referred to Enforcement. The FSA's concern is to ensure that clients' money is protected and returned to them if firms become insolvent, a risk that was highlighted in the Lehman's failure, and is now a hot topic.

Earlier this year, the FSA issued its largest ever fine of over £33 million against JP Morgan Securities Ltd for failing to protect client money by segregating it appropriately. Clearly, any firm that holds client money should ensure that the relevant rules are being complied with or they run the risk of similar punishment.

Consumer Redress Scheme

On 12 October 2010, the FSA's power to deliver effective redress for consumers was activated, as part of the changes brought about by the Financial Services Act 2010. The consumer redress scheme gives the FSA power to order firms to investigate potential breaches of the regulations, assess whether fillings have caused loss and what the redress should be. Furthermore, the FSA can then order firms to return any redress due to its customers.

This is a far reaching power, and is likely to have huge consequences for regulated firms and authorised persons, as it is not limited to retail customers. The consumer redress scheme is, however, an important tool for the FSA to ensure that consumers are recompensed quickly and fairly. Sally Dewar, the FSA's managing director of risk, has said that "[t]his power would obviously be used proportionately."

Hedge Fund Regulation Reform – Europe and the US

Following the effects of the recession, markets globally have been looking to increase regulation of Hedge Funds, Private Equity Funds and other investment vehicles. This has been particularly so in the US and the EU.

In the US, on 21 July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act came into force.

On 15 September 2010, the European Commission published a remarkably similar proposal regulating financial markets.

This is indicative of commitment to harmonising regulation between these markets. The Dodd-Frank Act was introduced in the US to ensure greater oversight of the financial sector, brining in greater reporting obligations for a larger number of entities. The Act introduces a Commodity Futures Trading Commission (CFTC) which is responsible for providing clearance for swaps accepted by registered clearing organisations. It is hoped that greater transparency will lead to better regulation and less risk of losses on the scale we have seen so recently.

The EC Regulation proposes to establish a European Securities and Market Authority (ESMA), similar to the CFTC, with the responsibility of clearing all OTC derivatives through a central counterparty. The EC Regulation also proposes to allow hedge funds who are registered in one EU jurisdiction, to then have a "passport" to all the other EU jurisdictions, without having to register again. This would mirror the regulations concerning organisations regulated by the Financial Services Authority.

Insurance Broker Jailed

On 26 October 2010, an insurance broker was sentenced to 21 months' imprisonment and fined £100,000 for authorising corrupt payments of nearly US$2 million to Costa Rican officials.

Mr Messent was initially investigated by the SFO for allegations concerning his time as a director of PWS International Ltd (PWS), a London based insurance company. PWS acted as insurance broker for a Costa Rican insurance company and the Costa Rican telecoms provider, both of which were state-owned. During Messent's time at PWS, he authorised 41 corrupt payments to Costa Rican officials. Suspicions were first roused after an election in Costa Rica in 2002, resulting in a change in officials, and enquiries regarding the PWS contract.

Messent admitted to the allegations of corruption pursuant to the Prevention of Corruption Act 1906. In passing the sentence, HHJ Rivlin QC noted that "it is no mitigation to say others do it or that it is the way of doing business...anyone minded to do it should be deterred from doing so".

Richard Alderman, Director of the SFO said "[t]his case shows how determined we are to pursue business men who bribe. Working with agencies in other countries is a key feature of our approach which can result in action being taken against both sides of the bribe."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.