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Peter Hamilton: Financial services regulation needs drastic reform


In my last column I urged that the FCA should be properly accountable and the best way of achieving this was to bring it in-house, making it into a government department as part of the Treasury with its own minister, who would be responsive to public pressure and answerable to Parliament.

For those who doubt whether Parliament can effectively hold the Government to account, it is worth considering what is happening now over the Treasury’s intention to cut tax credits in early 2016, so that even with the proposed increase to the national living wage, which will not be fully implemented until the end of this Parliament, most recipients of tax credits will be significantly poorer than they now are.

This has attracted considerable public, parliamentary, academic and media scrutiny, and demonstrates how Parliament, with others, can put pressure on the Government. Whatever one thinks about the merits of this particular issue – and who knows how it will end – it is clear there is pressure on the Treasury. That is how it should be in a parliamentary democracy.

The FCA regulates a huge swathe of the UK’s economy and should be subject to the same scrutiny as the Treasury. It certainly should not be theoretically independent, but subject to considerable control by the Treasury. That needs reform.

Bringing about substantial reform at a national level is likely to be a slow and frustrating process. But it can be done. One has only to look at the dogged determination of Baroness Lawrence’s efforts to obtain justice arising out of the murder of her son more than 20 years ago.

During that period she has fought to bring the murderers to justice and the police to account. Now, the National Crime Agency has been appointed to investigate allegations that corruption in the Metropolitan Police shielded the murderers of Stephen Lawrence. That is another significant step towards the uncovering of the full facts she seeks.

The financial services industry needs to agree on the top two or three aspects most in need of reform and coordinate a campaign to persuade MPs and peers to act. That is easier said than done, but if Baroness Lawrence could make headway in the face of odds that would have defeated a less determined person, it must be possible to do the same for financial services.

So what aspects of financial services regulation are most in need of reform? In my view, first is the need to change the status of the FCA from a so-called independent body into a government department with a minister responsible to Parliament.

The second is surely the Financial Ombudsman Service. For a start, it is unbalanced in favour of the consumer/complainant. The complainant pays nothing when he or she complains and is not bound by the FOS decision. But if it is accepted, the firm is bound to pay compensation up to £150,000. What is more, the FOS does not apply the law but decides complaints on the basis of what it considers to be fair and reasonable. There is no appeal.

Anthony Speaight QC and I have proposed the form of the FOS should be fundamentally changed. Very briefly, we propose all FOS cases be decided by the adjudicators, who already decide at least 93 per cent. The position of the ombudsman would be abolished. Instead, both the customer and the firm would be able to refer the adjudicator’s decision to a new first tier tribunal. If the firm wished to refer the case, it would have to pay the amount awarded to be held by the tribunal, where it would be held pending a decision.

The case would be completely reheard, with examination and cross-examination of witnesses. English law would apply. Customers would not be exposed to a costs order against them. If a firm initiated a reference and lost, it would have to pay the customer’s costs. The money saved by the abolition of the position of the ombudsman would be used to create a legal aid fund to help customers present their cases to the tribunal. Of course, the details would need to be worked through.

Finally, the way in which the system of regulation is financed needs to be changed. At a time when the Treasury is demanding the entire Government reduces its spending, it makes no sense for the FCA to be able to maintain or increase the fees exacted from the firms it regulates. If the FCA were a government department, its costs would be subject to the same scrutiny as all other departments.

Those changes are needed. It will take time to bring them about but if we do not start pushing for them now, they will never happen.

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of 



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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Crikey Peter, I can see Ms McDermott enlisting the services of Matthew Hopkins (witch finder general) to hunt you down !!

    Do you not realize this will be construed as heresy, in the halls of Canary Wharf !!

    To be sure, a magic trick to be-hold if you pull it off, plenty of fire and brimstone for the muggles at the FCA.

    (as you may guess still high on sugar from all the sweets gathered recently)

  2. The FCA is and always has been a government department masquerading as an independent body. The only reason it’s been allowed for so long to get away with this pretence is that the Treasury, very unwisely as it’s now turned out, left it to its own devices.

    Now that the Treasury has at last realised how much damage can result from an unaccountable body wielding its powers in a reckless/irresponsible/incompetent (take your pick) manner, it’s stepped in with the clear intention of knocking a few heads together. The FCA’s usual tactic of trying to fob off a body that it felt had no business sticking in its oar body was swiftly stamped on in no uncertain terms.

    So, this time, things may actually change and the pack of mad dogs at Canary Wharf will be brought to heel. We live in hope.

  3. What can we do to help you get your Baronetcy – you have my support. Bring these numbskis under control and let advisers have the ability to have their day in court with a jury of their peers.

  4. A very good article, it is what is needed, its a shame it is very unlikely to happen.

    My only concern is that if the consumer does not have to pay something towards the cost of the tribunal should they fail, there is still no risk on their behalf, no moral hazard. This would mean many would proceed as they know they will not suffer any financial or legal consequence. This is very much how the system currently works,even if they have committed fraud, lied and misdirected whilst seeking to gain their required outcome.

    When you do not use the principles of law there is always a very poor outcome. The law is there to protect everyone and the consequences should at least be definable. To this end the consumer may not have to pay if they lose their case, however if it is clear they have lied, misrepresented information, withheld information there should be a clear message. That message should be that the police will be involved, prosecutions pursued and claims will be made, as you should not have any system that is so one sided. You cannot say this is not fair, will put consumers off proceeding, as if they have told the truth they have nothing to fear.

  5. It’s difficult to get behind a rallying cry that doesn’t include some variant of the phrase “Follow me!” Instead, we have above a feeble “someone should do something” whine.

    Mr Hamilton is no Dan Daly. I don’t even agree with his agnda, so it won’t be me leading the financial services charge with a stirring “Come on, you sons of bitches, do you want to live forever?”

  6. Wow! Reform is desperately needed and Peter Hamilton’s suggestions sound like a solid and workable foundation.

    Can we (the financial services industry) do something to get this properly looked at? I fear that the FCA would be less than keen, so up to those of us they regulate to push for change.

  7. One problem. Look at the NHS, education and of course our dear financial services industry since 1986. No Government of any political persuasion wants to take the responsibility. So the invent a buffer to blame when some of their more idiotic political decisions implode. Bringing regulation back into the core of Government – no chance.

  8. The problem with not having an Ombudsman’s final decision is the fact that the FOS can revisit the complaint at any time and has done so when an adjudicator has been declared to have gone ‘native’. The rest of it has been a really great gravy train since 1985, for HMT policy makers and their regulatory servants.

  9. So as I read this, the customer pays nothing throughout, whatever the outcome and we get to refer the case through a proper legal process, but pay additional legal costs if we lose (on top of any award).

    And people think this is a good thing? Am I missing something in Peter’s suggestion?

    I have a suggestion, apply Peter’s idea but with customer’s becoming financially accountable if their claim is proved to be spurious. That will cut a lot of the nonsense out!

  10. This is perhaps the most compelling argument that I have heard yet. Peter makes some excellent points, though I recognise Mike Owen’s concern. UK Plc seems to want to outsource everything it can, measuring “outcomes” with simlpistic short-term time frames, leading to micro-management on an unprecedented scale. Collective Governments have killed off teaching and look set to do the same to medical practitioners. The outcomes we look for in financial services are a trustworthy sector, financial independence from the State and clients not running out of money.

  11. Making a single MP responsible for overseeing the regulation of the most complex financial services market in the world? Really? You do realise how wide the FCA’s remit is right?

  12. We certainly have the worst of all worlds – a regulator that is THEORETICALLY independent but actually a football.

    Reform – more radical than this – is badly needed. But not in the way suggested here which is pretty much a lawyer’s charter?

  13. Again Peter Hamilton knocks the ball out of the park. No one should be in any doubt that under FAMR. Everything is up for grabs and the regulator currently”Mr no mates”.

    I visited my mate Bill on Saturday. He has small field with 20 chickens. Last month, he liberated a dozen battery farm chickens and put them in a coop over night. Next morning he opened and door – it took them 3 days to leave their coop.

    I think that is where the sector is now

    The real question is will the sector get out if its comfy coop and do something.This we are about to find out.

  14. I agree that in an ideal world, if a party referred a FOS adjudicator’s decision to the tribunal, the loser should pay the winner’s costs. That is one of the rules that puts a brake on litigation in the UK. But the suggestion that Anthony Speaight QC and I made was intended to meet the objection that it was harsh to make such a change, and it might be more palatable to Parliament to make the other changes we suggested if the consumer did not have to pay costs.

    It is a question of practical politics: to get a reasonable reform of the FOS for which some concession might have to be made. It seems to me that (a) the application of the law of the land; and (b) a reference to a tribunal that would rehear the case like in a conventional court of law, with witnesses being examined and cross-examined, are vital to rebalancing the way in which the FOS works.

    On the other hand, I also agree that if the consumer is found guilty of putting forward a fraudulent or frivolous case, the consumer should be made to pay the firm’s costs. If the consumer is using a claims’ company, then that company should be jointly liable for the firm’s costs in cases such cases.

    But that said, what are other people’s top three issues for reform? If we could get some agreement in the industry on a programme for reform, we could begin to get some MPs interested.

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