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Colonial – the FSA’s letters

Last week, Money Marketing revealed a court ruling upholding an endowment complaint against Winterthur subsidiary Colonial Mutual UK Holdings Group partly based on evidence from FSA correspondence to MPs and the claimant.

These letters show how the FSA’s stance changed over the years. In its defence, Winterthur used the letter from FSA investment business director Michael Folger as evidence the firm was always authorised under the Financial Services Act 1986.

LibDem MP Tom Brake wrote letters trying to pin down the FSA on the matter on behalf of the complainant who was his constituent. In 2004, FSA managing director David Kenmir told Brake a section 44 contract was not required in writing between an AR and its principal, although the principal was required to accept responsibility in writing.

In the last correspondence, FSA company secretary Iain Brown said a written agreement was entered into in 1993 and the FSA was unable to find in its files any evidence of a section 44 contract before this date.

Ross Cranston, QC, MP
House of Commons
London SW1A 0AA

17 January 2001

Dear Mr Cranston


Thank you for your letter of 8 January.

I can confirm that Colonial Mutual Group (UK Holdings) Ltd (“the company”) has never been directly authorised by LAUTRO or PIA. It has, however, been an appointed representative of Colonial Mutual Life Assurance Society Ltd since 27 February 1898. In December 1996, when the Colonial Mutual Group demutualised, the company’s name was changed to Colonial Financial Services (UK) Ltd and in that name it remains an Appointed Representative of Colonial Life UK Ltd.

The company has throughout the period acted as a service company for the authorised firms and it was with this company that the same advisers’ contracts were written. This is a not uncommon approach within the life assurance industry.

I trust this information is helpful. If I can be of any further assistance please let me know.

Michael Folger
Director – Investment Business
Financial Services Authority

[Letter to claimant’s solicitors]

20 December 2005

Re: The authorised status of Colonial Mutual Life Assurance Society Limited and Colonial Mutual Group (UK Holdings) Limited

I refer to your letter dated 16 November 2005 (received by us on 28 November) in response to my letter dated 29 September 2005.

You seek further information with respect of the appointment of Colonial Mutual Group (UK Holdings) Limited (the “Company”) as an appointed representative (“AR”) of Colonial Mutual Life Assurance Society Limited (“Colonial Mutual”), an authorised firm.

It appears to us that there may still be a misunderstanding about the relevance to the FSA, as regulator, of when a written appointment agreement between the Company and Colonial Mutual was executed. Our predecessor regulator’s concern was that there should be no gap in the protection of consumers. This concern was addressed by Colonial Mutual confirming that it would be responsible for all business written through the Company before April 1993. While, depending on the facts that may be established in court, the lack of an earlier agreement might have justified further regulatory action at the time, there is no case for that over twelve years later. It follows that, to the FSA, whether or not a written agreement exited before April 1993 is not of current regulatory interest, so we are not in a position to confirm or otherwise if were are “relying” on it.

Having said that, we confirm that:

  • the Company has never been directly authorised by LAUTRO, PIA or the FSA;
  • the Company has acted as an AR for Colonial Mutual since 27 February 1989;
  • the Company and Colonial Mutual entered into a written agreement with respect of the appointment of the Company as an AR for Colonial Mutual on 1 April 1993;
  • we have been unable to locate in our files a document prior to this date evidencing in writing that Colonial Mutual Life accepted responsibility for the investment business carried on by the Company, in accordance with section 44 of the Financial Services Act 1986.

For completeness, we confirm that in December 1996, when the Company demutualised, its name changed to Colonial Financial Services (UK) Limited and in that name it remains an AR of Colonial Life UK Limited (formerly Colonial Mutual).

I hope that this letter clarifies our position.

K Iain Brown
Company Secretary
Financial Services Authority

Tom Brake Esq MP
House of Commons
London SW1A 0AA

20 August 2004

Dear Mr Brake

Thank you for your letter of 27 July addressed to our former Chairman, Sir Howard Davies on behalf of your constituent.

Over the past two years we have responded substantively to your constituent on several occasions in connection with his dealings as an appointed representative (AR) with Colonial Mutual Group (UK Holdings) Limited now Winterthur Financial Services UK Limited. Our position was outlines by Howard Davies in his letter to you of 29 May 2003 (copy enclosed) explaining that we regarded the matter as a commercial contract dispute between your constituent with parts of the Colonial Group. We responded once more on 7 July 2003 in similar vein but, when we received further enquiries, we decided that we could add nothing further on this matter and advised of this in our letter of 5 August 2003.

In our response to your constituent’s most recent letter to us, we took the view that his question was closely connected with his earlier enquiry, or an indirect attempt to re-open the matter with us. This was because s44 was the section of the Financial Services Act 1986 (the FS Act) which has governed the relationship between an AR and its principal. As we only have limited resources to use on answering the considerable volume of queries we receive from members of the public, we occasionally have to refuse to correspond further with particular individuals where we feel that we can add nothing further and where our resource would be better applied to other enquiries. This is why we have not answered your constituent’s question. This is not a decision that we take lightly.

Your constituent asks whether it is ‘illegal’ for an AR firm to operate without a contract in writing with it’s principal under Section 44 of the FS Act. There was no express requirement for the contract between the AR and its principal to be in writing, although the principal was required to accept responsibility for the AR’s activities in writing. However, the provisions in the FS Act were supplemented by further requirements imposed by relevant regulator of the principal at the time. So, for example, Personal Investment Authority rule 3.2 required principals to put the contract for services by which any AR firm was engaged in writing.

I am sorry that I cannot be more helpful in this instance.

Yours Sincerely

David Kenmir
Managing Director
Financial Services Authority


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