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FSA in a sub-class of its own on PacCon

Many years ago, a personal finance website I was working on came up with the idea of launching a magazine. I was asked who I would ideally like to write for the magazine and the first name that came to mind was Tony Hetherington.

Over the years, Hetherington’s top-notch research has helped expose hundreds, possibly thousands, of rip-off merchants the length and breadth of this country – and often outside the UK too. I have no doubt that, without him, consumers would be far worse off, at the mercy of con artists who prey on the weak and vulnerable.

One of Hetherington’s longest-running battles, one that he fought virtually alone over a period of several years, was over the activities of Pacific Continental Securities, also known as PacCon, in its various incarnations.

He first began writing on this subject in 2004, to my knowledge, when the company admitted that it was taking commission of up to 12.5 per cent to punt shares in companies that were often incredibly high-risk.

In subsequent years, scores of distraught investors, many of them elderly, wrote to Hetherington to complain at the way they were treated by Pacific Continental Securities. Their sales techniques were barely more sophisticated than the worst boiler room scams, in which highly dodgy and worthless shares are talked up by salespeople with almost no knowledge or experience in investment matters. Not surprisingly, these shares almost always turn out to be total duds.

What is particularly striking about Hetherington’s lonely furrow throughout all this time is that almost all his articles would end with an appeal to the FSA to intervene and take action against Pacific Continental Securities, offering to provide it with details of that company’s activities.

By this stage, a number of other newspapers had cottoned on to what PacCon was up to.

They too began writing scathing articles about the company, based on their own readers who felt they had been conned into buying worthless shares.

Yet it took the FSA until June 2007 to finally ban the company from taking on any new business, as a result of which it went into administration shortly thereafter. The company was placed into liquidation in March 2008 and was then declared in default by the Financial Services Compensation Scheme last month.

It is believed that around 8,000 former clients of PacCon may have suffered losses estimated at anything up to £300m. But the amount they might receive from the FSCS will be nearer to £70m.

Sadly, the reality for investors, many of whom were conned by the company’s dodgy salesmen into paying sums of over six figures for worthless shares, is that they will not be entitled to payouts of more than £48,000, the FSCS upper compensation limit.

Meanwhile, the FSCS is now saying it wants to raise a £40m levy from the D2 investment intermediation sub-class, which Pacific Continental was classed under, as part of the changes to funding structures introduced last year.

For many IFAs reading this, the way the FSCS is raising this levy will bring sighs of relief. They are part of the C2 life and pensions sub-class which will not be facing a levy to pay for the collapse of PacCon. Yet the fact remains that many IFAs, particularly those who have had pretensions to move their businesses up market and into investment planning, this will be a painful blow.

All the more so, as the margins by which they were classed as being in the C2 or D2 categories is, at the margins, pretty insignificant. A split of business between life and pensions and investment mediation to the nearest 10 per cent is all that distinguishes the two types of IFA firms – and levies that might cost them tens of thousands of pounds.

According to Aifa director general Chris Cummings: “The investment intermediation sub-class was seen as a safe harbour for IFAs because nothing ever happened to stockbrokers.” If so, this has turned out to be a highly expensive mistake for many investment-focused advisers.

But should they be paying the bill? What about the FSA? Shouldn’t it be taking some of the blame? In its defence, the FSA says it launched its investigation into PacCon in September 2005, four years after the firm was set up and at least a year after Hetherington started writing about it. Although the regulator began its enforcement action against the firm in June 2006, this proceeded more slowly than it wanted, largely because PacCon chief executive Steven Griggs kept on appealing against its findings.

Yet what is striking about this whole story is that the regulator was at least a year, probably longer, behind Tony Hetherington, a single journalist with one computer, internet access and a large filing cabinet. In common with its failure to regulate the banks effectively and many other failings over the past decade, the utter ineffectiveness of the FSA as a pro- tector of consumer interests.

On past occasions, the consumer alone paid for the regulator’s failings. Today, IFAs are paying the price too. Tell me something – what does it feel like?

Nic Cicutti can be contacted at


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