Aifa warns on legal costs of FSCS judicial review
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Aifa has warned members of the costs associated with Regulatory Legal’s challenge of the Financial Services Compensation Scheme’s £80m interim levy.
This week, Money Marketing revealed that Regulatory Legal had been given the go-ahead to launch its judicial review against the FSCS levy after the High Court ruled it had an arguable case. A High Court hearing is likely this autumn if the law firm can raise the necessary funds.
Regulatory Legal partner Gareth Fatchett (pictured) estimates that the firm will need to raise £200,000 to pay legal costs and possible FSCS costs should the judicial review fail.
In a note to members, published today, Aifa warns members over the costs of the review even if it is successful.
It says: “The additional cost to the sector, next year, in FSCS’ management time, will also have to be considered. I do not recall any of the coverage so far mentioning this financial downside: which could be serious to those who are asked to pay the FSCS’ legal bill.
“It is worth considering the scenario that the judicial review is successful. It is customary that bodies such as the FSCS immediately appeal the verdict and continue to pursue their case through the legal system. This is both time consuming and increasingly costly. Thus, those who support the challenge should be prepared both for the time the legal process could take (several years) and the mounting liabilities they could incur.”
Aifa says it is in discussions with FSA, FSCS and other interested parties about how the scheme works and how it is funded, with a consultation paper due out in November.
In the meantime, it is lobbying the FSA to undertake a review of its actions regarding Keydata and is due to meet them shortly to review the situation.
It says: “This has been an obvious regulatory failure. The FSCS carries out its functions according to its rules. The rules are set by FSA – hence our focus on FSA. We believe that members are right to feel angry at, and let down by, the FSCS and FSA. Fundamental change is needed to both and that is the action we are pursuing urgently.”
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Readers' comments (26)
Peter | 2 Jul 2010 1:57 pm
There may well be costs involved but there comes a time in every situation when you have to say enough is enough and try to do some thing about it rather than just sitting back and hoping somebody else will solve the problem.It is time the FSA FSCS etc were made to realise that we have had enough of all these unwarranted costs.Come on the IFA community lets get behind this and work for a better future whilst we still have the chance.
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Anonymous | 2 Jul 2010 2:16 pm
I cant see what all the fuss is about - the Financial Services Industry (apart from a few fee based IFA's) will be Crucified in December 2012.
I'm past caring, because I will have left the Industry before that happens!
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Hugh Jeego | 2 Jul 2010 2:20 pm
I`ll wager the farm that AIFA`s discussions will drag on with the FSA until a court case starts so that they can then say it is Sub Judice and they can no longer comment. Pussycats!
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Paul Schwer | 2 Jul 2010 2:22 pm
Well said Peter. I would rather pay £500 that is fairly and justifiably due, than £100 that cannot be justified legally or morally. Remember, this could be the thin end of the wedge. I'm sure there would be no doubts or delays from the IFA community in supporting the action against the FSCS if these notional figures I've mentioned were the other way around!
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Anonymous | 2 Jul 2010 2:25 pm
As in every case here are reasonable costs and unreasonable costs. In this case the cost of the action when shared amongst us is very reasonable compared with the punitive penalty imposed by our regulators collectively on the financial services commuinity, who by and large are not to blame or have any direct responsibility in the matter. I agree with Peter - it is about time we stood together and highlighted the inadequacies of our flawed regulatory system for the benefit of all not forgetting the poor consumer who eventually pays anyway. It is a pity that bodies such as AIFA do not take the opportunity to speak out for those they are meant to represent instead of following a 'political' agenda.
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Anonymous | 2 Jul 2010 2:26 pm
The other option is to roll over and the next time The FSA say jump we all ask 'how high sir' AIFA are using scare tactics now because they were not up to the task in the first place.
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Simon Webster | 2 Jul 2010 2:34 pm
The FSA is out of control and has lost the plot completely. Elsewhere I read today that a firm had to spend £200k plus to review its systems at the FSA's insistence. Jobs were lost as a result.
The FSA must be forced to account for its actions. It is now a matter of the survival of the IFA sector.
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Gareth Fatchett | 2 Jul 2010 2:57 pm
I would like to point out some factual inaccuracies in the AIFA statement.
1. The FSCS lodged a 30 or so page bundle in response to our application on the 21st May 2010. It is wholly misleading to suggest that permissions are routine.
2. The Grounds took our team and counsel a significant amount of time to put together. The observations of the High Court Judge make it obvious that we have merit.If it was purely procedural then why would a High Court Judge be needed ?
3. If we win, we could be appealed. If we lose, we could appeal. Both these options are available to either side. Clearly, if we were to win then the FSCS may seek to appeal. We have no control over this.
4. It appears that AIFA take the view that by making the FSCS justify themselves will only run up costs. That is ridiculous. We need the FSCS to justify themselves and work hard in doing so.
5. The AIFA lawyers clearly do not understand procedure in judicial review. The negativity at first instance was wrong and no doubt they would be very happy to shout "I told you so". Let us not forget IFA firms pay AIFA to protect their interests. Not to find ways to say "no" to anything and everything they personally find challenging or difficult.
6. The choice for firms is very stark. We take the view that the AIFA position of "negotiating" with the FSA or the FSCS over the interim levy is a waste of time. The decision was made and AIFA were completely ignored from what we can see. Why does anyone think there will be an about turn now ?
7. We enlisted the support of 212 firms initially to fund the initial application. They committed £235.00 or £352.50 toward the initial application. We paid counsels fees, our own costs and committed to pay the adverse costs from the firm. I think that shows commitment from our partnership which cannot be questioned.
8. The next stage is the hearing. We feel that the monies to run the a full claim is not beyond the industry.
9. The problem is that AIFA do not like confrontation and would prefer to "negotiate" everything. They may do sterling work on many topics, but on this their passive approach has not worked.
Conclusion
We are not going to run a claim without support. We are going to ask firms to help out and for a couple of hundred pounds I am surprised to find resistance. As all IFA firms require capital adequacy way in excess of this, the "cannot afford it" excuse does not really wash.
In summation IFA firms have two choices.
1. Negotiate and discuss in committee rooms or;
2. Ask the judiciary to decide objectively in full open view of everyone.
(1) is free and you will not be asked to participate
(2) is a couple of hundred pounds and you can fully participate.
Gareth Fatchett
Regulatory Legal LLP
gareth.fatchett@regulatorylegal.co.uk
01384 426400
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Alan Parkinson | 2 Jul 2010 3:00 pm
It sounds to me that AIFA are taking sides on this issue and are trying to dissuade members from supporting the review by highlighting the potential downside. Why is there not a name attitbuted to this press release?
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Michael Fallas | 2 Jul 2010 3:19 pm
Agree with Peter
Whilst it is good to hear AIFA is in discusions with the regulator etc about the issue I suspect many small IFA's may not survive until a conclusion is made.
The whole system is flawed and until that changes I am sad to say this will get a lot worse.
The issue here is really with the FSA but as they are I believe protected by statute we are pretty powerless to do anything unless our Government changes the situation and for me the only way to make changes is to hassle the Government and local MP's and I mean really make your voices known as I have done to my MP who is the "Attorney General".
Time to go to straight the organ grinder, as they say.
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