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Damaged goods

Regulatory stupidity has allowed IFAs to take the flak for endowment mispricing

Under the regulatory carpet, is it a mysterious place where dodgy deals are done between the leviathan and its pals at the providers and banks in the name of “principles”?

My favourite definition of principles is “moral obligation”. The providers and their friends at the FSA have no moral obligation so the much vaunted new era of principle-based regulation is unworkable.

All the commentators were waxing lyrical about a two-and-a-half-year battle to get an excellent result from the Information Commissioner which practically told the nation that regulation is bust and is not fit for purpose. Yet the FSA chose to do appeal against the rather comprehensive ICO decision.

Why did it appeal? Perhaps it fears the wrath of its provider buddies who will simply say: “We cannot be held responsible for industrywide initiatives.” In other words, SIB did it, gov, or was it the Depart-ment of Trade and Industry via the Government Actuary’s Department?

Everyone thinks the Lautro 12 were the only ones who misrepresented the risk by using inappropriate charges to set the premiums at outset but the fact is many more did it. The few who shall remain nameless were the ones who failed to ensure that their paperwork was in order.

The FSA told the Information Commissioner’s Office that all the providers had compensated their victims. The FSA definition of compensation is to put the consumer back in the position he would have been in if he had not bought the contract. All the evidence shows that the method of compensating for being misled varied from a special bonus to an increased allocation rate for future premiums. No standard method was used and no one received proper redress in the way that standard mortgage endowment complaints are dealt with.

Why is that? And why is it that their chief counsel told me that only some providers had made a voluntary attempt to make amends? Why voluntary? Why did the FSA have to go cap in hand to find out which companies did the dirty on their customers? Does the FSA know anything about the industry it regulates?

In response to an official complaint against the FSA, a former PIA ombudsman told me to go away because the FSA cannot be held responsible for what previous regulators did, even when I pointed out that the FSA is indeed the previous regulator with a fancy new name.

This is simply a cover-up of regulatory stupidity, with providers standing by and letting IFAs struggle with the problem while paying out big sums of money via the Financial Services Compensation Scheme. When I ask why IFAs are being forced to pay for someone else’s errors in this manner, their answer appears to be to shove all the manufacturers of these dodgy products in the same compensation category. So that makes it fair? What if one (or more) of these big firms falls over?

This leads me to the speech Howard Davies made in Washington. It mentioned financial stability and the only real danger the FSA has had to deal with. It was the life offices that were saved from the brink of the abyss through some deals done behind closed doors. No IFAs were invited – they never are.

There, you now know why you are suffering strangulation by regulation. You are collateral damage in the fight for compensation for someone else’s acts or omissions many years ago. For the common good, you suffer the slings and arrows of the media screaming misselling.

The misselling is down to regulation regulation which is not fit for purpose and the thought of seeing a provider/bank cartel being created via the retail distribution review should be of grave concern to those who champion the consumer.

Evan Owen is head of the IFA Defence Union


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