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Ex-FSA head of ethics blasts ‘vindictive’ financial regulation


Former FSA head of ethics David Jackman has blasted financial services regulation as “vindictive” and says the UK will need a new regulator by 2020.

Writing in Banking 2020: A Vision for the future, a New Economics Foundation report published this week, Jackman, who helped set up the FSA and left in 2003, says the Financial Conduct Authority is relying on “placebo” regulation.

He says: “I am fairly sure history will repeat itself and we will be looking for a single regulator by 2020. The twin peaks system will struggle because there is no longer one institution balancing tensions between practitioners and service users.

“The current structure is motivated by political vindictiveness and a desire for a fresh start. It is unlikely, on past form, to last 10 years. And we would be better served by a more difficult but integrated system.”

Jackman also calls for a reduction in the power of shareholders at banks by making directors equally accountable to other stakeholders such as communities, customers, the wider economy and employees.

By forcing directors to serve a wider range of stakeholders Jackman says banks would produce better long-term strategies and distribute their profits more fairly.

Clayden Associates director Daniel Clayden says: “It is a bit soon to say the new regulator is doomed to failure. The reality is that part of regulation is about reacting to events as well as prevention.”



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There are 16 comments at the moment, we would love to hear your opinion too.

  1. Arguably all regulation is doomed.

    Market principles should mean that the strong prosper and the weak die.

    In a perfect economic environment there would be no need for regulatory leeches and the compliance sector which is then an unnecessary appendage.

  2. It would be interesting to see a review of all regulators across all industries to see what these regulators cost and what if any benefit they provide as most seem to operate in a retrospective, reactive environment.

  3. That’s not what David says – Professor Jackman is describing the disestablishement of the FSA by the present government as a vincitive act against the former, Labour administration. People would do well to listen to David; as a former pupil of his, I have always found his thoughts sound and well articulated.

  4. Pot Kettle
    The vindictiveness towards IFAs’ by the regulator
    is unbeatable.
    Like any bully, they like to dish it out but begin to cry when they are on the receiving end.

  5. It all boils down to one word: Accountability!

    With the FSA/FCA the separation of powers does not exist as authority is granted to the FSA at risk of our rights. You see the executive FSA is not supposed to make laws (the role of the legislature) or interpret them (the role of the judiciary). The role of the executive is to enforce the law as written by the legislature and for its actions to be adjudicated upon by the judicial system. We all know this is not the case in financial services. The FSA is therefore an abuse of power in a democratic system and as such a danger to us all.

    FSMA 2000 is bad law as it gave the regulators statutory authority A statutory authority is a body set up by law which is authorised to enforce legislation. FSMA 2000 was bad law and many said so at the time! It gave the FSA/FCA the powers of dictatorship unrestricted by the judiciary or accepted rules of the constitution, or other social and political factors within the state. It suited Gordon Brown and now the Conservative (to their shame) to allow regulation by dictatorship i.e. unrestricted by law, parliament.

    The FSA/FCA is an unelected, unaccountable body of the executive. In constitutional law the executive is the part of government but separate with responsibility for the administration of the state, in our case the regulation of the state and its financial services.

    The government claims the FSA is independent because they have an eye to preserving the myth of the “separation of powers”, a constitutional issue because if the government and executive are one and the same you risk dictatorships where the different powers of government are assumed by one body i.e. no separation of powers.

    The FSA and the government must be the same because the FSA is not answerable to government and the only way that could be tolerated is by virtue of the fact that the FSA is actually the government speaking.

    We know the FSA is not accountable to Treasury Ministers or to Parliament, as confirmed by Hector Sants at a Treasury Select Committee meeting on 9 March 2011.

    Solution – make the regulator accountable to the judiciary and to parliament

  6. @Simon
    Stand for election Simon
    you will have my vote.

  7. @Simon Mansell

    You were right to point this out years ago when this whole sorry mess was dreamt up and you are more right today !!

    Sadly, you, like me and a good few others, constantly have a feeling of de ja vu !

  8. @Simon Mansell

    In the UK there is relatively weak separation of powers with respect to the legislature and the executive. To all intents and purposes they are one and the same thing. However, the UK does have a strong judiciary and that provides a check, including the application of what goes for a constitution in this country. Anyone who has taken the time to read a judgement from a High Court judge where the Government is involved will be left in no doubt that they don’t give a fig for anything but what they think is right. The Government is regularly humiliated in court and quite rightly so. And for the record what the court says goes.

    As far as the FCA is concerned Parliament is sovereign and in its wisdom has granted the FCA wide powers which it can remove at any time – if it wants to.

    However, the FCA is not beyond the law just because some people (including me) don’t like the way it is set up and operates.

  9. @ Grey area
    apart from acting in “bad faith” and good luck with that one,where is the regulator subject to law.
    while we are at it what about FOS? “We do not have to pretend to ‘find’ what the law is. We unashamedly make new ‘law’”, boasted Walter Merricks1

  10. @Anonymous 1:46

    The primary law is the Financial Services and Markets Act 2000. It gives the FCA very wide discretion… that’s the law.

    If the FCA did something that was outside of the powers granted to it by FSMA, or did something unconstitutional, then the court can intervene. Some prominent legal professionals have expressed the view that they have gone too far but who’s going to stick their neck out and actually challenge them in court?

    The FSA/FCA is also subject to the jurisdiction of the Tribunal and has lost there on a number of well documented occasions.

    You may not agree with the powers conferred on the regulator by the law (in effect ‘bad law’) but that’s different to it operating outside of the law (ultra vires). In the latter case the courts can and will intervene.

    Apart from the Tribunal the same applies to the FOS. It has been taken to court on a number of occasions being accused of exceeding its powers. Indeed, there was one such case reported on this week in MM. Walter Merricks would have been more accurate if he had said “we unashamedly set new precedents”. A court doesn’t have to follow anything the FOS produce so it’s not new law.

  11. Simon Mansell 7th June 2013 at 2:18 pm

    @Grey Area: “The Government is regularly humiliated in court and quite rightly so. And for the record what the court says goes.”

    If you are a regulated adviser you will understand that this statement is not correct. The FSA/FCA. have regularly thwarted the Courts because they have been granted the powers to so do.

    This is the advice given by Lord Lester of Herne Hill QC and Monica Carss-Frisk prior to the implementation of FSMA2000:

    We are asked to advise on two issues:
    (a) Whether the institution of disciplinary proceedings by the Financial Services Authority (“FSA”) purely on the basis of a breach of one of its proposed statements of principle could potentially infringe Article 7 of the European Convention on Human Rights (“ECHR”);
    (b)Whether, in the light of the policy statements in Chapter 5 of the FSA’s Consultation Paper 17, the nature of the disciplinary proceedings which the FSA will be empowered to bring under the Financial Services and Markets Bill (“the Bill”) is criminal or civil.

    2. For the reasons given below, we consider that (1) the conviction of a firm of a disciplinary offence purely on the basis of a breach of one of the statements of principle, where the conduct in question does not fall within any detailed rule, evidential provision, code or guidance, would be contrary to Article 7 of the ECHR; and (2) disciplinary proceedings under the Bill would be treated as criminal in substance for the purposes of attracting the procedural safeguards guaranteed by Article 6 of the ECHR.

    Many people raised concerns about the compatibility with the Convention Rights of the FSMA Certain of these concerns were investigated in some detail by the Joint Committee on Financial Services and Markets chaired by Lord Burns. The Burns Committee raised specific concerns in its First Report and despite improvements, the Committee continued to raise compatibility Issues.

    We continue to put a sticky plaster on these concerns rather than the radical surgery demanded. There must be NO REGULATION WITHOUT ACCOUNTABILITY. FSMA 2000 is bad law.

  12. @Simon

    I meant it was regularly humiliated in general, not in regard to FSMA. Apologies if that wasn’t clear.

    Yes, those were ‘opinions’. But the ECHR hasn’t agreed on the few occasions it’s been asked so it would appear they were wrong.

    I think on the rest we are singing from the same hymn sheet. I don’t like FSMA and I think it is unconstitutional. I believe it to be bad law.

    The point I was making is that it is still the law and the FCA operate within it not outside of it.

  13. The FSA’s shameful abuse of power in respect of CF Arch cru demonstrates that absolute power truly corrupts absolutely.

    Until those individuals responsible are brought to account, it will be impossible to move forward in this debate.

  14. Julian Stevens 8th June 2013 at 11:43 am

    APFA will nicely ask the FCA to reconsider its style of regulation and for it to provide appropriate assurances that it will not perpetuate the way in which its predecessor has for years routinely and with impunity abused, over-charged, persecuted and inflicted on the IFA sector one injustice after another.

    Unless Martin Wheatley really does intend to be a very different CE from his predecessor, such tactics will probably make not a scrap of difference but, for as long as APFA holds fast to the belief that this is the only strategy at its disposal, that seems set to be its gameplan for the foreseeable and possibly indefinite future.

  15. Julian Stevens 9th June 2013 at 1:38 pm

    Given that the regulator enjoys statutory immunity from just about every and any excess and injustice that it cares to rain down on the industry, the only way to redress this imbalance must surely be a statutory body to regulate the regulator.

    The first task of an Independent Regulatory Oversight Committee should be to force the regulator to abide by the Statutory requirements of the Code of Practice for Regulators. Why the regulator remains free to ignore this item of Statute and why the TSC never makes any mention of the fact remain two enduring mysteries.

  16. The chances are that any ‘independent regulatory oversight committee would be stuffed full of the usual suspects who will maintain the status quo.

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