FCA looks far afield to replace enforcement chief

The UK's financial watchdog has looked as far as Hong Kong for a candidate to head up its enforcement division, which has imposed record fines for a string of recent City scandals.

The Financial Conduct Authority is in the final stages of selecting a successor to Tracey McDermott, who presided over a series of headline-grabbing investigations, such as those into the manipulation of Libor and foreign exchange benchmarks.

She was promoted to head of supervision earlier this year amid a wider restructuring of the agency in the wake of a scandal over a botched press briefing that caused shares in leading UK insurers to plummet.

The leading external candidate, according to people familiar with the situation, is Mark Steward, who heads enforcement at Hong Kong's Securities and Futures Commission. Mr Steward - who is well known to the FCA's chief executive, Martin Wheatley, from his time leading the Hong Kong agency - was in the running against Ms McDermott three years ago.

On Mr Steward's watch, the SFC has built on its first insider-trading prosecution and has garnered a reputation as a tough watchdog.

Internally, candidates include Georgina Philippou, who is acting head of the 420-strong enforcement team. Ms Philippou, who worked as an analyst at a stockbroker and at an investment bank before moving to the regulator, also chairs an enforcement committee at Iosco, the global group of securities regulators.

Interviews with a shortlist of four are under way after a headhunting process handled by Russell Reynolds, an executive search firm.

The FCA declined to comment. An SFC spokesman for Mr Steward also declined to comment.

The hunt for a successor to Ms McDermott, to whom staff are fiercely loyal, comes as the enforcement division must define new priorities for itself.

The team is finishing its sprawling probes into Libor and forex rigging, which between them have netted £1.87bn in fines for the FCA alone. Barclays is set to pay its £2bn forex fine imminently but proceeds from fines go to the Treasury after the regulator has recouped its investigation costs.

The resource-heavy investigations sucked up over two-thirds of the division, and meant little progress has been made over the past four years in other traditional areas of enforcement, such as insider trading.

The new head will be able to choose from a wider array of enforcement tools. Not only are there new criminal powers to prosecute traders who rig Libor or forex benchmarks, but also a new criminal offence of recklessly mismanaging a bank, part of a package of measures that has sparked consternation in the City over the extra liability it places on senior managers.

The FCA also has new competition powers, which means it can fine companies as much as 30 per cent of their global turnover in a relevant market if it finds evidence of monopolistic behaviour or price-fixing.

If it believes that competition is being stifled, it could refer whole markets for further review by the Competition and Markets Authority, which has almost unique powers among developed nations to order companies to sell off businesses even if there has been no technical breach of the law.

The terms of reference of the FCA's first competition review, into investment banking, are expected to be unveiled as soon as next week.

Additional reporting by Harriet Agnew in London

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