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Complaints Commission urges FCA to protect inexperienced investors

Complaints Commissioner Antony Townsend has called on the FCA to upscale protection of vulnerable investors, despite siding with the regulator over a complainant’s allegations that poor transparency around unregulated products and investments led them to lose £125,000.

Townsend says there is no case against the watchdog in the three part complaint, but has again criticised its lack of clarity on investor communications.

Part one of the complainant’s allegation says the regulator failed to supervise the complaint’s financial adviser, resulting in the loss of the £125,000 and jeopardising the integrity of the financial services industry.

The complainant contacted the FCA’s customer contact centre on multiple occasions between July and November last year in an attempt to communicate concerns about their financial adviser and their firm.

The adviser, who formerly operated within a national firm, is now directly authorised and running their own practice.

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The complainant was a first-time engager with financial advice and seeking advice on retirement planning and investments.

The complainant followed advice to take out two loan agreements with a lump sum amount from their pension.

The loans were with a third-party company and were communicated to the complainant as being low risk and within their best interests, Townsend says.

The third-party company subsequently declared insolvency and the adviser was found to have held a conflict of interest with the company that had not been declared to the complainant.

Townsend says: “[The complainant] approached the Financial Ombudsman Service but was told that there was no redress against the adviser, only the firm he worked for, which by that time had also gone into liquidation.”

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Regarding part one of the complaint that the FCA failed to supervise the adviser, Townsend says: “The FCA’s complaint response said this was not upheld because CCC passed on the information you provided to the relevant supervision team who had acted appropriately.

“Further details could not be provided to you because of confidentiality restrictions and the FCA’s policy approach to its regulatory work.”

Part two is an allegation that the FCA continues giving approval to advisers without auditing their portfolios and giving specific attention to their selling of unregulated products.

Part three of the final report is the allegation that the FCA’s rules around the Financial Services Compensation Scheme made the complainant unable to obtain compensation for the losses.

The complainant had approached the FSCS on discovering that their former adviser’s firm had entered into liquidation.

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The claim was denied as the third-party company in which the complainant’s loans had been invested was not registered. The products in which the money was placed were also unregulated.

Townsend says neither part two or three of the complaint was formally investigated by the FCA, as the regulator considered them to be outside its complaints scheme.

He says: “[The complainant] is dissatisfied with the FCA’s response to the situation as it does not provide a remedy for losses experienced after trusting an FCA-approved firm and financial adviser.

“[The complainant] also had no awareness of the wider situation when agreeing to take out the loans and has lost substantial funds and been left without redress.”

The FCA did contact the FSCS with regards to the case. Townsend says the lifeboat fund failed to respond in “a timely manner” leaving decisions on the redress to the CCC.

In his final report, the commissioner says confidentiality restricts communication of certain materials seen in order to make the conclusion on the case.

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He says: “Most of the FCA’s regulatory activity is not disclosed which can sometimes mean that any action the FCA may be taking is not apparent to complainants.

“I cannot give [the complainant] any information about the FCA’s ongoing investigation of the adviser, however I expect the FCA to take note of this experience and ensure proper steps are taken to avoid any repetition.”

Townsend also called on the FCA to ensure it has stronger communication with the FSCS and to provide the case complainant with further information on the clarity of its communication around redress availability.

He says: “[The complainant] has made a forceful point that the nature of the investments was irrelevant to those who are victims of unscrupulous practice.

“It is only reasonable in the circumstances that the FCA provides further information and I have raised my concern on several occasion that people may be under the false impression their investments are protected when firms are regulated by the FCA.”

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The FCA presented a Dear CEO letter to firms in January warning about the importance of ensuring financial promotions make it clear where products are not regulated.

Despite this, Townsend concludes: “The FCA clearly needs to do more work to reassure consumers and the public that it is fulfilling its consumer protection mission.

“The publicity surrounding recent high-profile cases has exacerbated this [and] the FCA also needs to consider what more it, and the regulatory system as a whole, can do to stamp out abuses and the exploitation of inexperienced investors unfamiliar with financial services products.

“It should also consider what steps can be taken to mitigate the risk that unscrupulous firms and advisers can escape responsibility in the way that you have experienced, leaving no safety net for victims.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. The number of times we see negative outcomes attached to unregulated products.

    Surely some common sense should prevail and that regulated advisers should not be allowed to advise upon or enable investment or indeed any engagement with unregulated products.

    It is madness that client experience is allowed through regulation to have been so negative.

    It is madness that firms who enable or engage in such activity go out of business when it goes wrong

    It is madness that the firms, who are left, pay for those who endanger industry reputation and consumers, by in many cases, being just too clever with their financial planning skills.

    In some cases the FSCS call could be enough to close them down too.

    FCA, ban advising upon and dealing with unregulated instruments right now.

    Just a thought.

  2. Julian Stevens 3rd July 2019 at 2:54 pm

    No case against the watchdog? Given that the FCA has a statutory responsibility to supervise the activities of all firms that it authorises, how can this be? The only basis on which it can have been unaware that this particular firm was selling unregulated investment schemes was that it never thought to ask, despite the fact that uninsured liabilities arising from failed unregulated investment schemes are the main cause of the ever increasing crisis with the FSCS and its funding.

    Even if the FCA had included a relevant question as part of the RMA Returns that firms are required to submit every six months, chances are that it wouldn’t have bothered to examine the data entered and would therefore still have been unaware. It’s a farce.

  3. On the 8th December 2001 the late, Christopher Fildes in his telegraph column City and Suburban – in the Daily Telegraph For some reason still have the article
    Some 18 years later his comments ring so true

    “There’s no such thing as a free regulator, and already Sir Howard wants more”
    GUESS what Sir Howard Davies wants for Christmas. That’s right: regulators. Already his dockside tower is home to 2,000 of them, but now that they are a law unto themselves, he wants more.
    This week the Financial Services Authority (Sir Howard is its first chairman) formally acquired powers that transcend the Bill of Rights. It is accountable to no one and has its own exemption from judicial review. Indeed, it has its own judicial system, tastefully accommodated in Lady Ottoline Morrell’s old town house.
    To think that all this began with Professor Jim Gower, who said that there was too much regulation already and saw no case for protecting fools from their own folly. All that regulation should do was to try to stop people being made fools of. He put up a scheme for this.
    Now, two Acts of Parliament later, schemes and regulators and their acronyms have come and gone – Fimbra, I suggested, was a condition of terminal darkness, from the Latin finis, an end, and umbra, a shade – and each one has made the next inevitable.
    There will be an outcry for a new Act and even wider powers, though the nimble Sir Howard will have moved on by then. Buyers of financial services will demand compensation when something goes wrong, as it always will.
    They have been led to believe that regulation has been thrown in at no cost to them, for their benefit. If it is free, they will want more of it and expect more from it, just as they would from a National Financial Health Service.

    • Julian Stevens 3rd July 2019 at 5:08 pm

      History since time immemorial has shown that power without accountability is extremely dangerous. So why is the FCA allowed to continue as it does, seeking ever more power (and money) with ever less accountability for how it uses them?

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