But when it is used, it must be seen to be fair and combine fairness with reasonable speed and reasonable cost. We believe they will bring greater clarity as to why certain cases are subject to enforcement action and that those affected will have a better understanding of the case to which they must respond. The recommendations will establish much more clearly the separation between those who prepare an enforcement case and those who make decisions on the case. As an incentive to settle, instead of challenge an enforcement decision, companies will also be offered discounts on their penalties of up to 30 per cent if they agree to settle early in the proceedings.Commenting on the changes, Callum McCarthy, FSA chairman, said: "This has been a full and careful review of the FSA's enforcement processes and the FSA board has accepted its recommendations entirely. However, under the new rules, a new independent legal division will be established to advise the RDC, with all communication disclosed to the defendant.The RDC will also no longer be involved in preliminary discussions with the defendant which may lead to a settlement, with this responsibility passing to the FSA's executive. Under current rules, the enforcement team which brings a charge against a company, can also give undisclosed legal advice to the RDC. L&G said it believed the FSA's disciplinary procedures were unfair, and succeeded in securing a reduction in its fine as well as a public shaming of the regulator after its tribunal clash.Among the most significant changes is an overhaul of the Regulatory Decisions Committee, where initial disciplinary hearings are carried out.

Mr Strachan's report was called for after the FSA's enforcement procedures were criticised by the Financial Services & Markets Tribunal during the regulator's clash with Legal & General, the life insurer. L&G became the first major financial services company to appeal against an enforcement decision, after it was fined £1.1m for mis-selling endowment policies at the end of the 2003. The Financial Services Authority (FSA) announced a string of sweeping changes to its enforcement procedures yesterday, agreeing to take on board all of the recommendations made by David Strachan, the FSA director who was commissioned to review the current system this year. The ICAEW voiced concern that making recklessness a criminal offence would stifle openness."While the institute believes that criminal behaviour should attract the appropriate sanction, it remains concerned that the proposed drafting of 'reckless behaviour' will have the unintended consequences of encouraging a tick-box approach to auditing," it said.The draft clauses appeared a day after the insurer Equitable Life slashed its claim against its former auditor, Ernst & Young, from £2.05bn to £705m.. recognises the importance of competition and choice as a driver of quality in the audit market," the DTI said yesterday.Auditors have complained that they can be easy targets when companies fail. Neil Lerner, at KPMG, said: "We are the deep pockets left after the actual perpetrators have left, or if they have no assets."However, under the changes accountants face prison sentences for recklessness. It added: "Reform of the current liability regime is not about absolving those who are at fault from responsibility, but ensuring that this liability is proportionate to the level of wrongdoing."The reforms aim to prevent collapses of audit firms such as that of Arthur Andersen, the auditor to the disgraced energy giant Enron, amid fears such bankruptcies would reduce the number of accounting firms to a non-competitive oligopoly "The Government ... When negotiating contracts with auditors, firms will either agree to limit auditors' liability or pay a much higher price for an unlimited liability contract. The industry's biggest trade body, the Institute of Chartered Accountants in England and Wales (ICAEW), welcomed the planned introduction of proportionate liability as an "important step forward".

The reform Bill, which will go to Parliament this autumn and could become law next year, will allow auditors to negotiate the size of claims according to their blame The amounts will be determined by the courts. Until now, accounting firms have faced unlimited liability for business collapses following an audit failure. The DTI published the draft clauses yesterday of a company law reform Bill after consulting audit firms, businesses and investors. The Department of Trade and Industry is pressing ahead with plans to protect auditors from unlimited damage claims from business failures, amid fears that excessive claims could bankrupt one of the major four accounting firms. Six other senior managers shared £2.4m from selling shares.RHM said it raised £475m from the offer, which represented 64 per cent of its enlarged share capital.