RPC points out that the high number of dawn raids is evidence of the FSA’s increased focus on more conspicuous and heavy handed enforcement exercises since the start of the credit crunch.
According to RPC, the FSA averaged over six dawn raids each calendar year from 2005 to 2007, increasing after the credit crunch to an average of 29 raids a year from 2008 to 2011.
Steven Francis, regulatory partner at RPC, says: “This shift in enforcement activity moves the FSA closer to the Securities and Exchange Commission in the US, where enforcement of white collar criminal activity involves a heavy and very visible police presence.
“Most FSA dawn raids relate to suspected insider dealing, which the FSA has been clamping down on following criticism for letting too much criminal activity continue unchecked.
“The raids are also designed to send a very powerful message to the broader market. A lot of time, preparation and money go into every dawn raid so this is a really significant increase in activity by the FSA.”
RPC points out the number of dawn raids dipped slightly last year from 36 raids in 2010 to 21 in 2011.
RPC says that the decrease probably follows a fall in the number of incidents of suspicious trading activity in the run up to a takeover announcement.
This could either signal that the FSA dawn raids are having their desired deterrent effect or that insider dealers are getting better at covering their tracks.
Francis adds: “The million dollar question is whether these highly visible raids are fundamentally changing people’s behaviour and reducing insider trading, or whether the FSA’s detection techniques are becoming more effective.
“Insider traders might simply be disguising their trades by buying smaller packets of shares through different dealers or they might be making smaller total purchases when they do get inside information, to reduce the risk of getting caught.”
“Most of these searches will focus on data recovery to find email correspondence. Dawn raid activity is so widely reported that by carrying out more dawn raids the FSA could push more criminals away from email correspondence to face-to-face meetings instead. This would make future dawn raids less effective over the longer term.”