Recent weeks have provided proof of the Financial Service Authority's (FSA) focus on both criminal insider dealing and civil market abuse.

Christian Littlewood, a senior investment banker, and his wife have been charged with 13 counts of insider dealing and one count of conspiracy to commit insider dealing. The case demonstrates the FSA's increased use of its criminal powers to tackle market abuse and, for the first time, sees the FSA seeking extradition of a suspect from abroad to face criminal charges of insider dealing in the UK, with a third suspect having been arrested in the Comoros Islands. The FSA is also pursuing two other insider dealing prosecutions.

The case follows a number of recent insider dealing convictions including that of Malcolm Calvert, formerly of Cazenove, last week for five counts of insider dealing for which he received a 21 month prison sentence. The FSA also announced that, as part of an agreed settlement, it had imposed a financial penalty for market abuse on Bertie Hatcher who had acted in concert with Mr Calvert. Mr Hatcher provided assistance to the FSA in the investigation into Mr Calvert and his fine was limited to a disgorgement of profits. Mr Calvert appears not to have co-operated to the same extent and the identity of the person at Cazenove who provided the inside information is unknown. The FSA has indicated an intention to undertake more plea bargaining of this kind in the future in order to encourage others to come forward and assist in the investigation and prosecution of insider dealing and market abuse.

The FSA also published, on 1 March 2010, new guidance on penalties which applies to misconduct taking place on or after 6 March 2010. The guidance clarifies that the minimum GB£100,000 penalty originally proposed for market abuse will be restricted to the most serious cases, but would have allowed the FSA to multiply Mr Hatcher's penalty by up to four times. It will be interesting to see how the new policy will be applied to future cases and how settlements such as Mr Hatcher's will be accommodated.

Over the past year insurers have had the advantage of being largely out of the regulatory limelight. The coming year, however, will be a busy time for both insurers and reinsurers who face significant regulatory and administrative hurdles over the next twelve months as they prepare for Solvency II.

There should now be few insurers or reinsurers in Europe who are not aware that they need to be well advanced in their preparations for Solvency II. Solvency II will fundamentally alter the capital adequacy regime for insurers in Europe. The regime, which is due to be implemented by 31 October 2010, will demand robust risk management and will set consistent standards for the measurement of assets and liabilities. Firms must also comply with rigorous governance and public disclosure standards.

In both its Financial Risk Outlook 2010 and Business Plan 2010/11, Solvency II takes the lion's share of the Financial Service Authority's (FSA) work-stream for the insurance sector over the coming year. The FSA will be working closely over the next few months with firms who are seeking approval to use an internal model for their Solvency Capital Requirement (SCR). This is the higher level capital requirement beyond the baseline "Minimum Capital Requirement".

Insurance firms should now be working closely with the regulator on their implementation plans. The Financial Risk Outlook specifies that firms' Solvency II preparations should be well advanced and that they need to be on top of developments in terms of the material being published by both the FSA and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) who have been developing advice to the European Commission on the detailed implementing measures.

Perhaps the most pressing concern for the FSA (and other European insurance supervisors) at this stage is that insurers and reinsurers participate in the forthcoming "QIS5" exercise. This is a quantitative impact study - the fifth and final - which will test the financial impact and suitability of Solvency II requirements. Firms are strongly encouraged to take part in the final testing exercise so that there is robust evidence to support any required changes to measures being considered by the European Commission.

On 12 March 2010, the Financial Services Authority (FSA) unveiled its new approach to regulation in a speech given by its CEO, Hector Sants (UK financial regulation: After the crisis).

According to Sants the FSA will adopt an "outcomes based approach" to regulation whereby it will intervene in regulated firms in a proactive way, and will judge decisions on the basis of a firm's "business model and other analysis". This will lead to the FSA taking a view on issues that might be disputed by firms and this in turn will lead to greater engagement. In addition to this, the FSA will conduct "intensive supervision" which is a more intrusive and direct style of supervision involving the scrutiny of management decisions.

According to Sants this new approach will underpin how the FSA carries out both prudential and conduct of business regulation. The FSA's prudential reform agenda is already underway and the new approach requires firms to be much more proactive in their assessment of risks and in monitoring adherence to the revised prudential regulatory framework.

In relation to conduct of business, this new approach seeks to achieve the following goals:

These goals will be achieved by:

The new strategy will involve an integrated model of risk analysis and research which will see the FSA making judgements on firms' decisions and actively intervening in product design. The FSA will also be more willing to test outcomes through mystery shopping and on-site visits. The FSA will also improve the framework and delivery of redress to consumers, starting with a review of the complaint-handling standards of all the major banking groups.

On 1 March 2010, the Financial Services Authority (FSA) published a policy statement on enforcement of financial penalties (PS10/4) together with amendments to the guidance in the Decision Procedure and Penalties manual (DEPP) (the revised guidance), following a consultation period between June and October 2009 (for background on the consultation, see Legal update, Enforcement of financial penalties: the FSA bares its teeth).

The revised guidance applies to any breach of the FSA rules which takes place on or after 6 March 2010. Where misconduct straddles that date, the revised guidance will apply to conduct from 6 March 2010 and the existing guidance will apply to conduct before that date.

The aims of the proposals outlined in the FSA's consultation paper were greater transparency, improved consistency and higher penalties to achieve credible deterrence.

The key changes that the FSA has made to the DEPP are to:

The starting point to determine the discipline element (step 2) will be to set the penalty based on a percentage of a minimum of a year's "relevant revenue" (for firms, ranging between 0% to 20%) or income (for individuals, ranging between 0% to 40%), or where the conduct continues for longer than a year, for the period of the breach.

In the case of a one-off event, such as an isolated incident of mis-marking, the relevant revenue or income will be that derived during the 12 months preceding the breach. The percentage used will depend on the seriousness, nature and impact of the misconduct, adopting a sliding scale from levels 1 to 5 on the basis that the more serious the misconduct, the higher the percentage applied.

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