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FSCS judicial review – Regulatory Legal and Aifa go head-to-head

Challenge is important for future of IFA industry

‘Our view is that our showdown would occur in public where anyone interested could attend.
‘Our view is that our showdown would occur in public where anyone interested could attend. The FSCS and the FSA cannot avoid the court date. The only way they will avoid explaining and accounting for their stance is by this action lacking support’

Gareth Fatchett, Partner, Regulatory Legal LLP

When we issued proceedings to judicially review the decision of the FSCS to issue an interim levy against the investment intermediary sub-class in respect of the Keydata claims, we received little trade body support.

They all took the view we were wasting our time. We were told the best way to deal with the FSCS and the FSA would be by negotiation. I have never seen the FSA negotiate properly on policy with the trade bodies.

The complete failure to address the lack of a long-stop defence is a good example. Some of our clients include firms which ceased to be authorised by the PIA in 1995 and yet the Financial Ombudsman Service asserts jurisdiction over these firms when dealing with complaints.

The cost of a judicial review in such a case outweighs the likely redress payable and so these IFAs (or retired IFAs) rarely want to fund such a challenge to a FOS decision. If they had done so, all IFAs might have benefited.

Here is an opportunity for all IFAs to stand united and to share the costs of a challenge that is just as important to the future of the IFA industry.

The problems at Lifemark have the potential to drop another huge levy on advisers. If we had waited and only challenged any later levy, the FSCS would state the original Keydata levy decision was not challenged in time. An application for judicial review must be brought within three months of any such decision.

On a micro level, the allocating of the Keydata damages to IFA firms creates a precedent.

On a macro level, the FSCS is ripe for review and a more equitable system should be put in place. The case will review the way in which regulatory bodies deal with the representations of IFA firms. We asked Aifa to disclose what “negotiations” had gone on prior to the FSCS deciding to levy Keydata on IFA firms. It was really disappointing when they ignored this request.

The costs of contributing in support of the challenge are, for each firm, nominal. We need to be able to show that the industry is united behind this matter.

The effect of a victory or a loss with adverse judicial comment will really help IFA firms as we go into the period when the changes over the retail distribution review are finally settled.

The chance to influence the rules that underpin the new regulatory regime is here right now. It should not be missed.

We take the view that IFA firms need to stand up and be counted. Firms have a choice. Are they going to support a challenge permitted by the High Court or do they favour their representatives arguing their cases in FSA meeting rooms over tea and biscuits?

Our view is that our showdown would occur in public where anyone interested could attend. The FSCS and the FSA cannot avoid the court date. The only way they will avoid explaining and accounting for their stance is by this action lacking support.

Many of the commentators have asked about adverse costs. This is a very important question. If we can get enough funding from IFA firms we will run the judicial review. We will not ask firms for any more money.

Let us be clear on this point. If we can get north of £150,000, we will run the challenge and risk the adverse costs’ order. We will deal with any shortfall ourselves and so volunteer to pick up potentially tens of thousands of pounds of adverse costs. Hopefully, this answers some of those asking whether I am personally supporting the case.

If we cannot get sufficient funding, and quickly, we will have to withdraw. The economics of this matter give us no choice. If we have to pull out, then that would be a major victory for the FSCS. It would mean that, realistically, they are never going to be challenged. I really hope that the chance is not squandered.

Aifa is focusing its firepower on FSA’s failings

‘We want a full public statement from the FSA setting out why this failure happened, what they have learnt and what steps will be taken to ensure it does not happen again’
‘We want a full public statement from the FSA setting out why this failure happened, what they have learnt and what steps will be taken to ensure it does not happen again’

Chris Cummings, director general, Aifa

There are times when my blood boils over the unfairness created by the regulatory structure that firms labour under. I want to make sure the wrong is corrected and lessons are learnt so it does not happen again.

Just such a situation happened when I first heard the Financial Services Compensation Scheme was labelling Keydata an “intermediary”.

We had urgent meetings with the FSCS’s chief executive to find out what had led them to this decision and how we could protect members from the resulting costs.

Given that the FSCS does not have an external assessor (unlike the FSA and the Financial Ombudsman Service – something that must change), Aifa’s chairman formally asked the FSCS’s chairman to review the decision.

The problem lies in the difference in regulatory permissions and definitions that are used by the FSA and the FSCS. The fact these do not align zean a firm that every sensible person can see is not an advisory business has been placed into our fee block for compensation payments.

This is obviously wrong and is exactly the reason why Aifa immediately raised this matter at the most senior levels of the regulator and why there is now a full review of the FSCS’s funding and the underlying definitions that the scheme uses – to make sure parity is agreed. That will sort out the medium term and prevent future issues like this arising.

But the fact is that members are being asked to pay for the FSA’s failure and that is wrong.

We instructed a specialist public law advocate to offer us advice on whether we could bring a successful judicial review of the FSCS’s decision.

The advice we received was against proceeding, given the expected outcome. We checked that advice again recently, with the same result.

I respect the right of every person to make their own decisions about whether to go to law or not. For some, the principle is always worth the cost. Aifa sought the advice of one of the UK’s leading advocates, Aifa’s elected council decided to heed that advice and that is still our position.

The root cause of the matter is the firm that did not receive full regulatory scrutiny at authorisation, was poorly supervised and subsequently failed.

This has again tarnished the reputation of the sector, risks depriving some clients of their funds and cost firms with entirely different businesses a great deal of money.

The FSA has yet again been found wanting. That is why, in my judgement, the FSA must be held to account. That is where Aifa is focusing its firepower and why we want a full public statement from the FSA setting out why this failure happened, what they have learnt and what steps will be taken to ensure it does not happen again.

Only at that stage will good firms have confidence that the FSA does not use the FSCS as a blank cheque to pay for its mistakes.


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There are 18 comments at the moment, we would love to hear your opinion too.

  1. We desperately need balance, I see none. All I see is an unfair and unreasonable regulatory system where the IFAs are continually being let down by all concerned.

    How did we ever get into this situation? Will the ‘new’ regulatory system be fair and reasonable?

    You now have the opportunity to change things for the better, don’t waste it. Unfortunately it does not include an expensive and pointless judicial review, that is how New Labour wanted it.

  2. I do not believe that a Judicial Review on the FSCS decision can succeed. I say this purely because the FSCS probably did not act ultra vires and did not move outwith its (cloudy) mandate.

    However the result was horrifically against the spirit of fairness which good law should always seek to protect.

    Mr Fatchetts action has merit for me as an IFA purely as a means of shining a bright light into this lousy regulatory shambles.

    Maybe it will make the non-trade media pick up the story.

    Maybe it will make it difficult for the incompetents to repeat their wrongdoings.

    Maybe the fight is worth it just to draw some blood.

    Gareth, although I think you will lose the battle, it may be worth it for the war effort.

    My cheque is on its way.

  3. I hope evryone reads this. I was sceptical at first however for the sake of £200 (I am a sole trader) which is the commission on a £10pm term plan, it is worth the fight. Guys this is the only chance we as a profession are going to get to try and bring these idiots to their senses about what they are doing and how they do it. For too long they have ridden rough shot over us and nothing is done. We are in a ridiculous situation now because AIFA have made very little difference to the way the FSA, FOS and FSCS trample all over us. It has got to be worth a fight this time as, in my view this is the last straw. Come on lets stand together and at least have half a chance of making a difference, like Simon my chaeque is also winging its way to you. The very best of luck Gareth

  4. As a profession we do little to stand up for ourselves – the trade bodies who allegedly represent us do even less. The odd moan on a blog counts for nothing.
    Here we have an opportunity to show a united front against a situation we all know is unfair & unjust – is that not worth £200 irrespective of the outcome?
    It is frightening to think of the potential future claims we may be forced to cough up for – win or lose, this review may just be the catalyst for something to change.
    If this does not proceed because we were not prepared to stand & fight then we must all hang our heads in shame & take whatever comes our way without so much as a whimper.
    My cheque went some time ago……

  5. Chris Cummings – wind your neck in. You say “we want a full public statement from the FSA setting out why this failure happened, what they have learnt and what steps will be taken to ensure it does not happen again. How many times do we have to hear those words about the FSA, FOS and FSCS – so it wont happen again? A fat lot of good that will do us now. Its starange that all your meetings with FSA, FOS and FSCS over the years has lead to very little benefit to honest, decent, hard working IFA’s. What about the courts telling them to correct the current screw ups in a public court – They will have to answer the High court instead of fobbing you off with a statement of their choosing at a time that suits them and that will be the end of it. A court of law will ensure this happens at a time that may not be suitable to them and will keep probing and probing and probing until it is satisfied. At least we have the possibility of getting this cronic situation sorted and getting us back the money we have already paid these incompentent baffoons that the previous morons in government set up. Rather than a load of cock and bull by FSA with end result of no change, no accountability on their part for their mistakes and we still have to pay these ridiculous and unfair charges. Make you parting jesture a good one and cough up £30000 or £40000 from AIFA towards this judicial review. Go do something really positive for a change and really help your membership.

  6. As I resigned from AIFA several years ago, I shall be sending my last 3 years AIFA Subscriptions as a donation towards the costs of the legal challenge.

  7. Glad to hear a lawyer saying he will foot any additional costs above and beyond what we pay his firm. Thats commitment for you. Win or loose the case make them suffer in public. Show the regulators to be the incompetents they really are.

  8. Richard Arnold 9th July 2010 at 10:14 am

    I am supporting Gareth and the cheque has been sent. Potentially their is more at stake than the Judicial review outcome. A strong show of unison from the IFA sector means we win whatever the outcome and may prove to be the catalyst for galvanising IFA opinion that will not be ignored .

    I guess i am among the thousands that whinge each day of the never ending stream of ill conceived regulatory initiatives and lack of accountability of the FSA. It is often overlooked that we embrace and accept the need and benefits of regulation provided it is balanced, informed and effective for both the consumer and the industry.

    Take some action. Send in your cheque. Its worth the money simply for the feeling of having taken some action.

  9. My £200 also went a week or so ago. As for the legal advice that the action will fail – this may be correct, but it may not.

    Tricky business, anticipating the outcome of a court case….

  10. very disappointed with the AIFA standpoint. This is why I gave up my membership. We need to support this action even if we lose. We have to get united, for once.

  11. Phil Southwell 9th July 2010 at 1:06 pm

    Just how many times will AIFA role over and say a limp OK.

    Where are the PFS ?

    Come on AIFA at least contibute some of your members funds for the cause, remember they are members funds not your own, at worst have a vote from members.

  12. paolo standerwick 9th July 2010 at 1:42 pm

    The only way to change things is from top to bottom. MPs need to change legislation, as the Leviathan overpaid and failed employees are fighting for their own worthless jobs.

  13. Simon Mansell 9th July 2010 at 1:49 pm

    At what point does the IFA turn his back and face his enemy? As a consequence it may well be that instead of his back it will be his heart that takes the regulatory knife but either way independent advice is bleeding to death. I think facing ones assailant and striking back is better than the back stabbing alternative on offer.

  14. Fight or flight, Gareth or AIFA? 9th July 2010 at 1:56 pm

    The issue is not win or lose the issue is fight or flight. AIFA offers flight and Gareth fight. For AIFA the stakes are even higher! For sitting back while others stand the IFA will reward AIFA with a mass exodus of membership.

  15. Chris Cummings says ‘That is where Aifa is focusing its firepower and why we want a full public statement from the FSA setting out why this failure happened, what they have learnt and what steps will be taken to ensure it does not happen again.’ – All this does is give someone at the FSA the chance to earn huge sums of money for writing a very long and meaningless document on a subject with no real outcome that will be of any benefit to anyone.

    Our fees could be greatly reduced if they didn’t spend so much on issuing papers that take years to write, nearly as long to read and have no real content. If our suitability reports to our clients looked like consultative papers (which are really the FSA’s version of suitablility reports to us – their clients) we would all be under enforcement action!

    Most of the FSA’s documents could be condensed into about 3 pages of clear English that we can all understand and act on…..but there you go….jobs for the boys!

  16. Julian Stevens 9th July 2010 at 5:47 pm

    Lots of people seem to be saying what a jolly good chap Chris Cummings is, what a great ambassador for the cause of the downtrodden IFA, what a great diplomat, what a good job he’s done at AIFA and………hey, just what an absolutely stonkingly all round GOOD BLOKE he is.

    BUT, the bottom line is that whilst our fees have been funding his not inconsiderable (reportedly in excess of £160,000 p.a.) salary, the oppressive tyranny of the FSA just seems to have gone from bad to worse.

    Just WHAT EXACTLY has AIFA under Chris Cummings’ leadership actually achieved as far as advancing the cause of the IFA and getting the FSA to direct its hatchets and sledgehammers in the direction in the direction of the real large scale wrong doers, namely the banks? That, plus the issue of the RDR are supposed to have been the two central elements of your remit, Chris.

    From where I’m sitting, it looks as though what you’ve achieved, in practice, doesn’t actually amount to anything much at all. About all you seem to have managed is to keep the dialogue with the FSA ongoing ~ but so what, if the FSA has no intention of giving any real ground and all they’re doing is merely humouring you for the sake of maintaining the facade of being a regulator prepared to enage with those it regulates? Nothing of any real value is actually happening.

    And now, in what seems to be our darkest hour yet, you’re jumping ship for a higher profile and probably even better paid job than that of DG of AIFA.

    It doesn’t look very good, does it? I wonder what you put on your CV under the section Achievements in your current post?

  17. Harriet – re consultation papers
    EXACTLY RIGHT!! Fully agree. I bet you that less that less than 1% of IFAs actually read the FSA papers from start to finish, not least because, as Harriet says, they are unreadable but also becuase we would all go out of business. Utter waste of time and money. And the questions are so rigged anyway – i mean, what if the whole objective of whatever the paper is waffling on about is wrong – it means the whole thing is a waste of time and OUR money…

  18. To Anon 8.48 It is important we all read and comment on the FSA papers which affect us whether we think what we say will be hear or no as it is only by doing this that we can identify the unexpected consequences ofintended FSA policy and eitehr loby to change the policy or adapt our businesses to meet the changes.

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