BUDGET: 800,000 increase in spend on external law firms

The Financial Services Authority's (FSA) enforcement division will spend almost twice as much as anticipated this year on external law firms and other professional advice - and foresees that it will spend more next year, according to its annual budget.

The FSA's forecast spend on external advice for enforcement during 2003/2004, the vast majority of which is spent on City firms and counsel, was 2.3 million - but 4.2 million is now forecast.

The FSA is now predicting an 800,000 rise on top of that for this coming year, having set aside 5 million for 2004/2005.

An FSA spokesman said external enforcement was one of the hardest things to budget for because it did not lie within the FSA's control to predict how many cases would arise.

'One year might be prolific, and cases started in one year could impact on budgets in the future,' he said.

But he added that the split-capital investment fund cases were the 'main driver' for the increased budget, plus a desire to put more resources into enforcement to bolster the FSA's reputation as an efficient regulator.

The majority of the enforcement budget is spent on external law firms, with some lawyers contracted to work on short-term, freelance-style contracts within the FSA.

This week, the FSA announced that it was extending the scope and availability of mediation for those going through the enforcement process so that all firms and individuals will now be eligible to apply for mediation, unless the FSA is pursuing a criminal investigation.

ACI (A Commercial Initiative for Dispute Resolution) has been appointed to administer the revised mediation scheme, replacing CEDR Solve after a tender.

Last week, City firm Herbert Smith announced that Martyn Hopper, currently head of the market integrity group in the FSA's enforcement division, is set to join in April as a partner in the dispute resolution department.

The FSA is conducting an 'end-to-end' internal review, which could see a major shake up in the FSA's enforcement regime.

It is scheduled to be published this spring.

Jeremy Fleming