One of the complaints you hear most often from IFAs is that they are over-regulated. A classic example can be seen in a recent comment by an anonymous correspondent to Money Marketing who wrote: “IFAs have fewer rights than terrorists, the FSA acts as judge and jury, there is no legal means of appeal and even an approach to the European Court of Human Rights has been denied.”
The problem for me is often that, far from the FSA behaving in an overbearing manner towards advisers or other sectors in the financial industry in general, it fails to protect consumers.
Allow me to explain. Last year, I contacted a newspaper and offered its personal finance editor a story about the poor regulation of foreign exchange services.
The editor was interested but wanted to know if I knew whether a foreign exchange broker might be facing financial difficulties.
A few weeks earlier, I had spotted a reference to Crown Currency Exchange in Investors’ Chronicle, raising questions about its financial strength and the background of one of its leading shareholders, Peter Benstead.
I did some digging and soon discovered all sorts of interesting things about Mr Benstead, a “serial entrepreneur” whose ventures were not always blessed with commercial success.
Among his businesses over the past decade or two have been a Mongolian restaurant, a conservatory and window frame business, a military vehicle museum and gold bullion companies.
Mr Benstead was barred in the late 1990s from being a company director for five years after one business failure.
Another of Mr Benstead’s other businesses last year was Dream Island Productions, a TV production company offering prospective reality show contestants an “extravagant lifestyle” on a desert island and a £100,000 top prize, in return for a £29.75 competition entry fee.
The contact address for the site itself was used by other companies to sell degrees and similar activities. This fee was later waived after some negative publicity and Dream Island Productions ceased trading shortly afterwards.
Mr Benstead told me last year that he regretted the use of a potentially questionable contact address for the company, which had been a genuine mistake.
While contacting the FSA for a quote about my story, I expressed strong concerns about Crown. I was told the FSA did not regulate Crown at present but the relevant authorities – which I was led to believe included the Treasury and HM Revenue & Customs – would be informed and any necessary action taken.
One or two journalists contacted me to find out more about Crown but nothing I told them saw the light of day. Last week, it was reported that Crown had gone under, owing an estimated 13,000 customers up to £20m in foreign currency they had paid for but not received.
At least one foreign currency broker had also reported its concerns about Crown to the FSA, although again no action was taken.
The FSA shelters behind the fact that it did not regulate Crown at the time but there was a strong argument to say it should have looked into the company and worked with other agencies to help prevent what subsequently happened.
At this point, one or two readers of this column will be wondering what the relevance of this article is to them. OK, so the FSA has yet again tap-danced its way round taking any responsibility for effective regulation of a company it should have examined more thoroughly. But why should IFAs want to see tougher regulation of their side of the industry? Why would they benefit if errant companies are closed down?
I can offer you £80m-worth of reasons why – Keydata, Square Mile and Pacific Continental.
Nic Cicutti can be contacted at firstname.lastname@example.org