Hardly a day goes by without a headline citing another FSA fine, which I find totally depressing. In fact, it was recently reported that FSA fines have tripled in the last 12 months.
What I have noticed is that the fines are increasingly imposed on firms that have not dotted every i and crossed every t rather than lost clients money. This culminated in JP Morgan Securities suffering a record fine of £33m for not segregating client money from money held by JP Morgan Chase Bank. The error had continued for seven years until JP Morgan discovered it, rectified it and reported it to the FSA and no client money was lost. It does beg the question, what were the 3,300 FSA staff doing for seven years while not spotting the error?
Our FSA fees totalled £12,000 for the year to date, which is an increase of 100 per cent on last year’s fees. Of this, £9,000 was paid to the Financial Services Compensation Scheme to compensate the clients of other failed firms such as Keydata. We contributed £200 to Gareth Fatchett’s Regulatory Legal firm to take the FSA to court and I urge other IFAs to do the same.
Down the plush corridors of the FSA’s offices in Canary Wharf, the number of FSA staff earning more than £100,000 has trebled over the last four years – rising from 81 in March 2006 to 241 last year. The regulator also awarded bonuses to 2,785 members of staff – almost 85 per cent of its workforce – with the biggest payout being 35 per cent of salary. It really would not be so bad if they were doing an effective job as a regulator.
IFA firms are responsible for just 2 per cent of all complaints received by the Financial Ombudsman Service, of which just 39 per cent are upheld. Bearing in mind that IFAs control more than 50 per cent of the market, this is a fantastic reflection of the quality of independent financial advice. The banks were responsible for 61 per cent of the complaints, of which 52 per cent were upheld. This begs the question, why are IFAs being so heavily targeted by the FSA?
It strikes me that any fines levied by the FSA should be paid straight into the compensation scheme and not into the coffers of the FSA. That would prevent them putting their noses in the trough. Such a scheme is unlikely to ever happen even although it makes perfectly good sense and I cannot help thinking that if such a scheme did exist then the number of fines and the size of them would be certain to fall considerably.
The impending break-up of the FSA gives the Government the opportunity to reform financial services regulation. Let us hope it succeeds and keeps the grim reaper of the FSA at bay.
Tony Byrne is financial planning director at Wealth And Tax Management