Securities: UK FSA's Annual Report carries serious warnings for industry

In the year from 1 April 2009 to 31 March 2010, the Financial Services Authority levied 46 fines totalling GBP33.6million.
That, coincidentally or not, is the same as the fine it levied this month on JP Morgan. So far this year it has levied 26 fines totalling GBP48.95 million.
And the industry should expect it to get worse. Fines levied by the FSA are added to its operating budget. And the FSA is expanding and recruiting.
Although the average pay per head reduced slightly last year (despite a 100% increase for Chairman Adair Turner and a bonus of more than GBP100,000 for outgoing chief executive Hector Sants - who has said he will give it to charity; one must ask why not refuse it as it is a combination of industry and taxpayer money but the answer is, no doubt that to do so would fetter his successors) the salaries budget has increased due to significant recruitment.
The FSA has taken a much more active role in approving - "authorising" in FSA terms - senior management of financial institutions. 377 applicants were called for interview - and 27 of them withdrew their applications.
But it's what's in the report and not in the summary that should strike a chill into many hearts.
Last year, the FSA conducted 384 ARROW assessments. This represents a major shift in supervisory policy: the FSA is now - if the assessments are being done by competent staff and not fresh graduates sent out with a pen and a check list - taking an active role to identify problems at an early stage rather than waiting for things to go wrong. Of course, this comes at a double cost to the industry: it supports the FSA financially and it has to spend time preparing for, during the conduct of and dealing with the aftermath of inspections.
"We are conducting several supervisory investigations into the UK banks that "failed" and required full or partial taxpayer support...will also ensure that if the actions of senior individuals within these UK institutions were deemed to have breached regulatory rules then the appropriate enforcement is taken."
The FSA handled more than 270 enquires relating to suspected boiler room or other share fraudsters: as a result, more than 200 alerts were issued.
Given the recent cases relating to separation of client funds, the following statement is worrisome: "we have concerns that he current quality of client money and asset audits do not provide the level of independent assurance that we require." Basically, the FSA is telling the Institute of Chartered Accountants that audits by their members are not up to scratch.
But its in relation to market abuse and in particular insider dealing that the FSA is promising to get heavy
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The FSA found more than 40 occasions where there were unusual or suspicious levels of transaction ahead of a material announcement, for example a takeover.
In relation to financial crime, the FSA's focus appears to have shifted away from money laundering per se to offences against financial institutions, in particular loan-relating fraud including mortgage fraud. Last year, 31 mortgage brokers were banned for involvement in mortgage fraud.