Angry investors seem to abound right now. In the past week, we have witnessed yet another Treasury select committee grilling the FSA and Treasury ministers over the Equitable Life saga.
At the same time, a Dyn-asty-like mini soap is being acted out in the High Court between the self-styled former Merrill Lynch Mercury ice maiden Carol Galley and Unilever's unflinching Wendy Mayall. Despite this action pending for many months, it has shown no signs of any out of court settlement.
Right now, we are witnessing a rare series of events. The interests of both retail and institutional investors – who, of course, in the Unilever case act for thousands of small savers lest we forget it – are attacking the mettle of both the regulatory forces and the body corporate of the UK's fund management industry.
Last week's admission by Treasury economic secretary Ruth Kelly that Equitable Life savers may be in line for Government compensation was truly surprising. Only three weeks earlier, at an FSA-sponsored fringe meeting at the Labour Party Conference, she had all but ruled out any such move. She declared: “If the ombudsman reports that injustice has been carried out to policyholders, then, of course, compensation is something we will look at.” A month is an eternity in politics.
On the back of a number of U-turns by the Government in the past few weeks – Rail-track, asylum seekers, cann-abis legalisation, among others – this is perhaps the most surprising for the financial services industry.
It may indicate the arrival of a Government-inspired compensation culture which may or may not do much to encourage investor confidence going forward. But it is certainly creeping on to the policy roadmap for the Treasury.
More important, what Kelly's admission may indicate is that the Government may now seek to legislate around the whole Equitable Life affair – a fact that may not brighten Sir Howard Davies' day.
While the FSA has a key legislative requirement of consumer protection, perhaps the whole Equitable Life saga demonstrates that its armoury is not as well stocked as the Government led itself to bel-ieve. Perhaps now is the time to arm it more effectively.
Equitable's strategic product failures should have been noted much earlier. But it was not alone – guaranteed annuities were not just offered by one company. The systemic risk issues should have been more clearly identified.The Government seems to be starting to take notice of – at least if comments of Treasury select committees are to be believed.
The compensation culture is on a roll right now and I think the Government believes that the Unilever case is a tremendous example of this.
Institutional investors are now increasingly hungry to litigate in this climate in the same way as smaller savers are likely to do so and everyone, including the Treasury, will be watching the result of the Unilever case with interest.
The key issue at stake in the case seems to be what in retail financial services would be termed knowing your clients and managing their expectations.
So, while Carol Galley and Wendy Mayall may have thought they were looking at each side of the same coin, perhaps they have been looking at different currencies altogether. But the fact that Unilever has not held back from enacting litigation is being treated extremely seriously by everyone – the Treasury, the FSA and the fund management industry to name but a few.
Normally, we would expect to see these cases resolved behind closed doors. The fact that it has not been possible to do so marks a profound change in the culture.
While an environment of lower growth and low inflation means everyone is going to have to get used to inevitably lower returns, what consumers of financial services – retail or institutional – will not stand for is a lack of transparency coupled with dilatory regulation.
You can see that this deft Treasury team – perhaps the savviest since New Labour's election in 1997 – senses this cultural move. Kelly's comments last week reflect a concern held by many.
Unilever's actions reflect a pent-up frustration about performance and transparency and we should not be surprised if the Government takes time to act.
So far, the FSA has had a relatively smooth ride. Now the waters are getting more choppy. A downturn is in pros-pect and the Equitable affair and the fate of the Railtrack investors are all firmly on the agenda. Compensation for private investors in Equitable policies, compensation for Unilever's pension fundholders – well, we will have to wait and see. The Treasury is biding its time – but just wait for it to act.
Iain Anderson is director and chief corporate counsel at Cicero Consulting