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FSCS chief hits back over tax avoidance criticism


Last week Money Marketing printed an open letter from West Riding Financial Solutions managing director Neil Liversidge criticising the FSCS for considering claims against ‘victims’ of tax avoidance schemes.

You can read his letter in full here.

Below is FSCS chief executive Mark Neale’s response:

Thank you for your personal letter of 11 September which appears in Money Marketing.  I have always welcomed the opportunity to discuss issues of common interest with Apfa and its members.  So perhaps you will not mind if I follow suit and address publicly the issues you raise?  Those issues are of wider interest.

You accuse me, on the one hand, of gaming the Scheme and, on the other, of being a jobsworth in the manner of Concentration Camp guards. Both can’t be true. In fact neither is.

FSCS reaches independent decisions about claims on their merits within the legal framework set for us by Parliament and the regulators.  We operate within this framework to protect consumers who have legitimate claims against regulated financial services firms which have failed. We apply a civil liability test and, in effect, ask the question: would a court uphold this claim if brought against a firm that was still trading?

FSCS’ protection underpins confidence in financial products.  Our independence ensures that both the industry and consumers can have confidence in our decisions.  We accept some claims where the civil liability test is met, but reject others where it is not.

This is exactly the process we have followed in considering whether we can consider claims arising from advice to participate in certain tax mitigation schemes which take the form of Unregulated Collective Investment Schemes (Ucis).  The question for FSCS here is whether some consumers may have a legitimate claim against the financial adviser who recommended participation.  For example, some claims have been made by basic rate taxpayers who were unable to benefit from any tax advantage.

The fact that we have concluded, after careful consideration, that we can consider such claims does not, of course, prejudge the outcome of individual claims.  We shall review all the circumstances of each claim, including the actions and responsibility of the claimants themselves.

Considering claims certainly does not imply that I (or FSCS) condone artificial tax avoidance arrangements.  As a former HM Treasury director general responsible for tax policy, I certainly don’t.  But FSCS is not, and should never be, a means of implementing the personal policy preferences of its chief executive.

FSCS must operate within the law as it is.  It does so and is subject to the scrutiny of its board, of the regulators and of the National Audit Office.

That does not, of course, mean that the law cannot be changed to amend the scope of FSCS protection where there is a good case for doing so.  The right course for those who feel, as you do, that FSCS protection should not extend to people seeking advice about how to reduce tax liabilities through participation in artificial schemes is to make that case.

Mark Neale, chief executive, Financial Services Compensation Scheme


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There are 31 comments at the moment, we would love to hear your opinion too.

  1. So don’t blame me blame the rules.

    Wow. Duck and dodge. However he is correct as is Neil Liversidge. The rules are clearly being moved into areas that they were never intended and are now threatening the very existence of financial advice. Until we have some mature and joined up thinking on the financial services future in the UK the advice gap will continue to grow.

    Underpins confidence in the Financial products – I would say the opposite from those who pay the FSCS fees.

  2. I respect Mark for his open response, and take view that in essence he is correct…………. doesn’t make it right though !

  3. Mark Neale says ‘we apply a civil liability test,and in effect ask the question would a court uphold this claim against a firm that was still trading’. Does this mean that if the FOS awarded a claim against a firm that would have been time barred under longstop, the firm then goes bust & cannot pay, the claim then passes on the FSCS would they would reject the claim on the basis that they adhere to what the ruling of a civil court would be?

    • Yes I think the FSCS DO applu the longstop unlike the FOS which is one reason why the FCA accepted that it was approrpiaet to mention the existence of the 15 year longstop in our client agreements as if a ltd company ceases trading, unlike a sole trader, the FSCS will apply the longstop.

  4. Sounds similar to Hector Sants telling the TSC I don’t make the rules, I only apply them. The fact is FSCS are unwilling to openly accept that the fee structures are arguably immoral, should be immediately reviewed and small advisory firms have been charged disproportionate regulatory costs for years. Mr Neale seems to have taken this letter as a personal attack rather than considering the legitimate points raised. This is frustrating as the FSCS will continue to take a defensive approach with little to no consideration of necessary improvements and general fairness.

    • Sadly, although I agreed with the points made in the letter, it was very much worded as a personal attack, which I think is a shame. People respond better to a well constructed argument that is not peppered with insults.

      I believe the problem sits with the FCA who have come up with a system where other people are required to pay for the regulatory mistakes made by the FCA. It is immoral and operates in a similar method to a Mafia protection racket. It means that the FCA remain unaccountable because the FSCS cleans up their mess.

      I don’t think that Mark Neale has much control over this so we should direct our ire at our MP’s because, as we know, the FCA doesn’t listen, it just takes our cash.

  5. Would a court uphold this claim is the test. Tax evasion is illegal. What these people were trying to do was ‘evade’ paying tax (they may have been trying to avoid paying tax, but the HMRC has proved they were evading not avoiding), therefore what they were doing was illegal. Correct me if i am wrong, but i dont think any court in the land will uphold anything that is illegal, so where does this test stand up and why are they paying out?

  6. Stop regulated firms from recommending investment within unregulated products. If the products are good and robust enough, let the FCA regulate and monitor them. If not, they should only be advised through other means and away from the harm which they can do to the rest of the regulated sector and FSCS. God knows there are enough firms out there selling financial planning and wealth planning schemes and trusts on an unregulated basis already (and doing very nicely!).

    • Simple solution to this Steve is a “product levy” less work for the FCA to do the due diligence, and research on the fund likewise for IFA’s (this will still need to be done I hasten to add, but not in such minute detail), however, this would mean the treasury/FCA changing the rules and actually putting some thought into the whole sorry affair ……… and we cant ask then to do that can we ? after all, they are very busy, and it works quite well for them as it is, good people paying for the wrong deeds of the bad, thats bureaucracy isn’t it ?

  7. Mr Neale either believes that it is fair and just to impose fines (levies) on the innocent to pay for the misdemeanours of the culpable or that such a practice is unfair and unjust.

    If believes the latter, and he is an honest and ethical person, he needs to examine his conscience and decide whether he is happy to continue to operate a system that is unfair and unjust regardless of the ‘rules’. The honourable course would be to resign and publically state the reason for his resignation. Such a high profile resignation and public statement might then put more pressure on swift reform than all the pressure we as small independent IFAs can bring to bear.

    However, if he believes the former, he will be able to look at himself in the mirror and go into work every day with a clear conscience.

  8. I read the piece by Neil and Mr Neale’s response.

    As far as Mr Liversidge is concerned I think he confuses rudeness with Yorkshire bluntness. I admit that I too am no diplomat, but before you wade in perhaps it’s as well to get all the facts straight.

    Does Neil really think that this sort of diatribe will do any good – apart from the relief of venting his spleen? I can only see the reputation of advisers being brought lower by this sort of invective. No doubt it plays well with the rabble, but I think it just has a negative effect. Particularly when individuals are personally attacked. If you are going to put the boot in I always think a little humour goes some way of making matters a little less incendiary.

  9. It is one of those: Mr Neal is right, but in the same time we need to pay the FSCS levy.

    There is only one way we can do this, by putting our fees up, which we did. The result is the increase in the price of advice, pricing out some people out of getting financial advice. Overall the outcome is not great.

  10. Neil’s letter made a good point about defining a suite of products that should enjoy FSCS protection. I can’t think of a more sensible idea. Let the avaricious who fall from their ladders while trying to reach ridiculously lucrative fruit suffer for their own greed (sorry – bit of an Eric Cantona moment there)
    Unfortunately however, he (Neil, not Eric) has let himself down by the vituperative nature of his letter. I share his boiling rage at the FSCS (as I suspect does everyone who has just picked up their 2015 bill) but we have to contain that when entering the debating ring because to vent it merely lessens the impact of our argument

  11. Thank you for your open response Mr Neale. However, a number of questions remain:-

    1. What are the qualifications and legal experience of the people within the FSCS who decide what claims a court of law would or would not uphold?

    2. Given that advice on investments into UCI Schemes never used to fall within the remit of the FSCS (it was a requirement that this must be made absolutely clear to potential investors), when and at whose behest was this changed (without either any prior announcement, let alone any consultation)?

    3. The reason why most of the firms that have advised on these schemes have been driven into default is that they didn’t have appropriate PII cover to do so. Is this not contrary to one of the FSA/FCA’s fundamental rules, not unlike driving a car without insurance?

    4. Isn’t the FSA/FCA at least partially responsible for having failed totally to identify such breaches and taken action on them? Should it not require firms to declare unequivocally as part of their periodic RMA Returns whether or not they have in place full PII cover for all areas on which they provide advice? Of course it should. Were it to do so, any firms answering NO would, overnight, have to stop recommending UCI Schemes (and any other things such as transfers out of DB pension schemes). Such firms would probably incur fines for having done so in the past. Is this not a fundamental failure on the part of the FSA/FCA to police its own rules and (as it so often does) shifting the blame for that failure onto other parties (for which the rest of us are all now having to pay the price)?

    I await your responses, Mr Neale.

  12. Like many above I agree with Neil’s sentiments but not the way it was expressed. For a grown man to Godwin over a matter of serious national concern is a schoolboy error. (Godwin’s Corollary: anyone who references the Nazis in a debate automatically loses it.) That was a full toss and by referencing Neil’s Godwinning at the top of his reply, Mark duly hits it over the pavillion.

  13. …..and I’m in the car park looking at my smashed car windscreen for which I alone will be picking up the tab, while Mark goes on to score his century 🙂

  14. Reply sent to Mark Neale today:

    Dear Mr Neale

    Clearly you have taken offence at my letter. So let me enlighten you, within the constraints imposed on me by the Chatham House Rule, as to precisely why I wrote it. (I’m very happy that you responded publicly by the way.)

    As I mentioned, you very kindly attended APFA’s council meeting and explained how you work. I think it’s fair to say you created the impression that the FSCS could usually find one way or another to pay out complainants. I was not the only person in the meeting who formed that impression and the reference to you ‘gaming’ the rules of the scheme was actually me quoting the words of another attendee. On that count then, if you object to my interpretation, you need to choose your words more carefully in the future. Right now the impression you have given is that you look to oil the wheel that squeaks the loudest. The problem is that we pay for the oil; not you.

    Subsequent to that meeting you were quoted in the press as saying you would like the scope of protection offered by the FSCS to be addressed. The article went on to refer to the 100% protection afforded long term insurance products and to the £50,000 limit on investment products. The implication was that you would like the £50,000 limit to be increased. The inference I draw from that is that you are looking for ways to give away more money. If that inference is correct you can soon address it by clarifying what you want in black and white. Do you want the limit increasing? Please tell us so that we can warn our clients of the increase in fees that will be necessary to fund your planned largesse.

    Lastly, perhaps you could explain to us the procedure you follow when a claim is received from a firm declared in default? The mere fact that a firm has ceased trading does not mean that all the advice it ever gave was faulty. Do you seek to secure the firm’s files so that the validity of claims can be assessed? Do you only pay out claimants who have had their claims validated by the FOS? Or do you just dole money out?

    I ask this because one owned of a failed firm has stated to me categorically that he offered his files to the FSCS so it could defend claims but the FSCS didn’t want to know. Did he mislead me? Or is that how you operate?

    I think it’s a valid point Mr Neale because you are in effect the Trustee of the funds we contribute. I for one would like to be assured that due diligence is exercised in its use.
    With kind regards
    Yours sincerely

    Neil F Liversidge Dip PFS

  15. @Neil Liversidge

    I had a very small Keydata case. It seemed that the 1 year deferral of action by the FSCS was supposed to be, at least partly, for IFAs to engage with the FSCS. As they only had my file to go on I called them and asked if I could send it to them, as it would have vindicated me completely from having misled the client (and the client had no complaints about anything I had said to them about the product). After I sent it they never looked at it, and their solicitors wouldn’t either. So much for engagement.

    • Patrick and Neil, I believe the reason they don’t, look at client files or review them, is they have no experience or qualifications in today’s modern financial services, same goes for the FCA and FOS. Most if not all who have been involved in FS did so many years ago, and frankly that is just not good enough, as this industry changes on a daily basis not in 5 or 10 yearly cycles.

      Its all gobbldygook as far as they are concerned, its like taking my tom cat to the newsagents to have his…… you know where I’m going so I wont expand !

  16. Everything on these forums is read by somebody or other (FCA, FSCS, etc), though how much, if any, notice of it is taken is open to doubt.

    And my four questions are sufficiently sticky that I’d be surprised to get an answer even if I were ask them directly. But you never know.

  17. @Patrick Schan: Thank you very much Patrick. I would very much welcome confirmation from others who are similarly happy to go on the record because this tallies precisely with what I’ve heard. If the soft option is to drive firms into default so the FSCS can dispense dollops of cash – our cash – regardless of merit, then the moral hazard is obvious. Twenty years ago Knight Williams was destroyed in pretty much the same way when it was effectively ‘ordered’ to find cases in favour of complainants so that money could be doled out and noisy complainants could thus be mollified and stop bothering their MPs. It seems that the regulatory system is increasingly establishing a massive Ponzi scheme whereby no investor is ever allowed to lose regardless of them having gone into investments well informed and with eyes open. FSCS contributors of course will be the ones funding the Ponzi so that the chancers who lie and/or play daft can be paid out at the other end.

  18. @Harry Katz: Harry, whenever I’m in the blogs I can count on you being there with some pompous comment or other, usually referring to my Yorkshire heritage in disparaging terms. Well I am a Yorkshireman and I’m very glad and grateful for the fact, so get over it. If I was of a mind I guess I could disparage your origins but I don’t do generalisations. Now given your frequent snipes at me I think a return of fire is called for in the shape of some home truths. In the time I’ve been on APFA’s Council I’ve stood up and spoken out for what I believe in. By contrast, though you sat on APFA’s Council for years, I can’t ever remember you standing up for anything. Nor can I remember you ever even contributing a single useful idea. I discount for its uselessness your frequently voiced idea when a Council member that we should have wound up the organisation. If you’d ever had your eyes open when you were so pontificating you’d have seen a dozen other pairs of eyes rolling toward the ceiling.

    I have over two thousand advisers on my campaign email mailing list, all of whom chose to be on it and who choose to stay on it. I was elected to APFA’s Council (when it was still AIFA) by a landslide against an incumbent on a clear platform of aggressive campaigning for advisers’ rights. Every week I take calls and emails from advisers who are suffering from failed regulation. Anyone who thinks my views of the regulatory establishment are expressed in unflattering terms should hear theirs.

    My firm’s motto is ‘Honest Advice in Plain English’ as it says on the sign outside our office. I tell it like it is Harry. I didn’t stand for election to APFA’s council to hob-nob with or brown-nose the establishment and I’m not the slightest bit interested in the payoffs and trinkets the establishment traditionally tried to bestow on those it wants to suborn. What I am interested in is running an honest business, looking after my clients and my staff, and representing the people who elected me, small firm owners doing the same as me, who are getting a bum deal from the FCA FOS and FSCS. If that gets up your nose and the noses of others – tough. I’m losing no sleep over it.

    My next Money Marketing column will outline an idea as to how the FOS can be made to work better. If you can take time off from lofty pontificating Harry, you might try having an idea yourself sometime.

  19. Neil

    I was not disparaging Yorkshire men at all if you care to read what I said more carefully than you have done.

    Your invariable bellicose, humourless and somewhat unrefined attitude often overlooks the facts in pursuit of your own populist and generally unattainable agenda.

    As you say I was on the AIFA council for many years before you and if you would take the trouble (which you rarely do) to check facts and read the minutes you will see that I did put forward several proposals before your time. Merely as by no means complete or comprehensive examples:
    1. The collegiate approach
    2. Run off insurance to cover the concerns about the long stop.
    3. For the Association to be an SPS provider. (Thereby obtaining a USP)
    4. For the Association to take a more commercial approach in raising money. (Education, golf days, and gala events. (With wives and dancing).
    5. To merge with a professional body. (The Law Soc. and the ICAEW are both trade and professional bodies and indeed the IFP is now taking that course).

    And yes to close down, as it was my duty as a director to suggest – as trading whilst knowingly insolvent is (as you should know) an offence.

    Your coarse approach lays itself open to ridicule so perhaps you should take more care before pooping off at all and sundry.

    Oh and for your further edification, my sister was born in Yorkshire and my grandparents aunts and uncles settled there when they escaped from Hitler (Middleborough to be precise).
    Yorkshire bluntness is in my opinion a worthy attribute, rudeness at which you are so adept is not. No doubt as ever you will ensure you have the last word and I will leave you to it, by all means show yourself up – yet again.

  20. Without wishing to become embroiled in this acrimonious spat between Neil and Harry, I think my vote of favour goes to Neil. He may be a feisty Yorkshire bulldog, but he does get out there and take the fight to the enemy, so for that we should give him our support.

  21. This comments section is another shining example of adviser professionalism.

  22. Julian

    I’m not looking for votes or favours. Nor do I consider this a war. Having differing opinions is both desirable and healthy, but I just don’t buy into rabble rousing and rudeness. And as has already been said by others this approach doesn’t seem to get results either – apart from placing the advice sector in lower regard with those whom you wish to influence.
    I thought that references to the SS were absolutely outrageous in this context and actually warrants an apology.

  23. Getting back to the grist of the matter, it is clear that the FSCS does not act as an arbiter and does not seek to qualify loss other than calculating the financials.

    As an adjunct to the equally capricious FOS it serves to encourage complainants yet then fails to sift out the opportunistic, naive or plain fraudulent.

    In an industry where we are frequently castigated by journalists, MPs and others for a lack of transparency it galls to see the FSCS create financial mayhem for good advisers by continually lading on sums for other supposed transgressions.

    As Neil suggested, Mr Neale should publicly state their processes and how they interpret wrongdoing without anything other than a complainants allegation.

    If he is willing I would be delighted to attend their offices and see for myself how the process is delivered.

  24. The sooner Financial Advice ceases to be regulated the better. The whole thing is a total mess. Offering compensation for so called bad financial advice where the back test is always what the client “thought” ( hmmn) he had, is a recipe for endless firm failures and huge compensation to clients who falsify their claims just because they can. The real crimes are being committed by the banks every day which for some strange reason the regulator never seems to know about until many years later. The banks are too Important to fail and they know it. They are the foundation of our political system called “capitalism” and they can run riot on the back of it.

    • Hello David, I tend to agree with what you say apart from being de-regulated, I believe we should be regulated, not having regulation would (IMHO) be madness.
      The thing is, regulation should be something to work towards, and along side, but what we have is regulation that drives us backwards and sideways !

  25. From: HM Treasury, The Rt Hon Danny Alexander and HM Revenue & Customs
    First published:19 March 2015
    Part of:March Budget 2015 and Tax evasion and avoidance

    “Tax evasion is a crime like any other. If people help a burglar, they are accomplices and criminals too. Now it will be the same for those that help tax evaders’.”


    There is a fine line between evasion and avoidance of tax, but one thing is for sure, the government is clamping down on both. In the majority of cases here the intention on the part of the ‘investor’ in going into an artificial scheme of this type was to outwit the tax man and avoid paying tax that would normally have been due. If the FSCS then gives these people their money back, aren’t they possibly getting a little close for comfort to ‘helping the burglar’?

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