back to menuThe SFA has issued an intervention order against Linnco Europe Limited (Linnco) in order to protect Linnco customers. The firm has been ordered to cease investment business with effect from 18th July, the only exception being to allow the transfer of customers' positions or assets to another firm or to close positions and return assets. Regulatory staff are at Linnco premises.
Linnco is a specialist in foreign exchange and derivatives brokerage and is not a member of any exchanges or clearing houses. The SFA discovered, when visiting the firm in June, that it had substantial deficits in its regulatory capital and served a Direction requiring the firm to rectify the deficiency by 12th July. The firm failed to do this and shareholders indicated that they were not prepared to inject further capital into the firm.
The SFA considers the lack of regulatory capital to be a serious matter as regulatory capital allows a firm to meet the ongoing costs of continued trading. In this way regulatory capital protects customers.
But what about the Financial Services Authority (FSA) in all this? The SFA is the body, set up under the Financial Services Act 1986, to regulate members of the organised City investment markets, i.e. the stock market, eurobond, futures markets, corporate finance specialists and off-market traders.
In 1997 the Government announced that it was to merge nine regulatory bodies, including SFA, into a single regulator for all financial markets. In 1998 the FSA began to supply regulatory services under contract to the SFA and the two other self regulatory bodies. At the same time the staff of the SFA, IMRO and PIA, as well as the supervisory and surveillance division of the Bank of England, all became employees of the FSA.
It was interesting to read in the Independent on Saturday 21st July that a top city financier had been blackballed by the FSA for 'reckless disregard' to risk. Sir Michael Richardson has been banned for life from working in financial services for writing letters on NatWest headed paper that could have been used for money laundering.
The action was attributed to the FSA acting under the Securities and Futures Authority rules. This is an example of how regulation works at the moment with the FSA actually carrying out investigation and enforcement on behalf of the SFA, which does not have any staff now.
Did you have to read the above carefully to avoid being confused by these initials? Well, it was confusing to write it. Surely it is not beyond the wit of man or woman to avoid this situation. The worst example is the FSA and the FSA, both important Government agencies.
Economic Secretary to the Treasury, Ruth Kelly, announced on 12th July that the Financial Services Authority will become the single statutory regulator under the Financial Services and Markets Act 2000 (FSMA) with effect from midnight on the 30th November 2001.
Speaking with FSA Chairman Sir Howard Davies and key industry and consumer representatives, Ruth Kelly said:
"My predecessor made a commitment that N2 - the date for the commencement of the main provisions of the Financial Services and Markets Act 2000 - would be no later than the end of November 2001. I am delighted to honour that commitment today.
"FSMA will, for the first time, unite a wide array of legislation and supervisory bodies under one statutory regulator. The FSA will be a single point of contact for firms. Alongside this will operate the Financial Ombudsman Service to deal with customer complaints. This will bring much needed clarity, certainty and transparency to the industry and consumers alike."
The Treasury will shortly be making the statutory instrument which allows firms with authority under old law to do financial services business to be 'grandfathered' across into permissions to do equivalent business once FSMA commences. Ruth Kelly said:
"FSA powers to consider applications from financial services firms to modify their grandfathered permissions; grant new permissions; and other matters, including waivers from the new FSA rules, will commence on Monday 3 September."
Sir Howard Davies, welcoming these announcements, said:
"N2 has been a long time coming. But the advantage is that there has been time to prepare properly. We will be ready to switch on the new regime at the end of November, thanks in large part to the invaluable co-operation and patience of firms, their trade associations and consumer groups."
Last Minute News - Melanie Johnson MP, the Consumer Affairs Minister, announced on 24th July that there will be a big crack down on extortionate consumer credit agreements. There will be new definitions about unfair credit terms and consumers who think they are being unfairly treated will have better ways of seeking redress.
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