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FSA should take greater responsibility in protecting the consumer

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 nic@inspiredmoney.co.uk

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. If you read the comments on this story you’ll see there is very little sympathy for people like this couple, one of whom works for the police would you believe and did not suspect a scam, who order their holiday money months in advance because they are greedy to be frank while the rest of us consider more than rates and take responsiblity.

    I do not want to pay for more regulation to protect greedy consumers. Let them take the profit and take the loss.
    http://www.portsmouth.co.uk/newshome/Couple-lose-cash-as-firm.6576139.jp

  2. Dear Nic

    You really must read the legislation and talk to the FSA because you don’t appear to know what the regulator can, or as is more likely cannot do.

  3. Fully agree Nic

    “Keydata, Square Mile and Pacific Continental” are not and never have been anything to do with IFAs.

    The FSA should regulate the product and ease up on regulating the sales/advice process.

    This they will never do as it would make the Regulator responsible and that would never do.

    The FSA much prefer to waste time nano regulating the advice/sales process when they really ought to put all their efforts into Product Regulation.

  4. Finally an article expresses what the ‘man in the street’ thinks rather than the self-interested postings from IFAs who think they are hard-done-by.

    Thank you for highlighting that, for all the ‘annoying’ things the FSA do to the people they are regulating, they are first and foremost, supposed to be protecting the customer.

    And quite clearly they are failing to do so despite the fact that it is in their power.

  5. Could not agree more with your comments, Nic, and add in other examples such as the Xmas Shopping Savings Clubs – where again appropriate regulations were nowhere to be seen until after the event, or when we saw the Government use legislation designed for terrorists to resolve the problems over Icelandic Banks.

    I hold the opinion, expressed in an article on here earlier, that IFAs have a crucial role to play in addressing such problems, those where the FSA, and Governments are failing to do so.

    A clear example for me, just now, includes those such as Keydata – but specifically – just how many of those affected read the keyfacts about the role of the FSCS to discover now what they were told is very far from the reality they now face?

    However, given the problems faced by consumers, let alone IFAs, I do then genuinely wonder just how many IFAs have responded to the Treasury consultation – A new approach to financial regulation – which closes on Monday?

    Just in case – Me? – Yes, sent.

  6. FSA should take greater responsibility in protecting the consumer??
    Perhaps I have really been living Mars for the past 5 years, but thought that was their job?

  7. “FSA should take greater responsibility in protecting the consumer??
    Perhaps I have really been living Mars for the past 5 years, but thought that was their job?”

    It IS indeed their job…..and in fact they have a statutory obligation to do it ie they are effectively breaking the law if they fail to do so……

    However there is a big difference, particularly in the public sector, between what someone is supposed to do and getting them to actually do it……….the FSA are no different.

    But of course if you catch them not doing their job, you have no come-back to force them to do it!

  8. jone2010 jone2010 23rd October 2010 at 10:02 am

    I like this site.
    Buy To Let Mortgages

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