Nobody can deny that 2011 was difficult for many, particularly from a business perspective. Well, if you think you had a hard year, imagine if you were an investor in Arch cru or Keydata funds. Arch cru investors, under the terms of the £54m payment scheme, have until December 31, 2012 to decide whether to accept the offer of about 70 per cent of their investment by way of compensation.
For Keydata investors, the battle for compensation continues. The Financial Services Compensation Scheme has accepted 5,200 claims from Keydata investors and has already paid out £67m but Aifa is concerned about the disclosure of personal information about investors by law firm Herbert Smith, which is acting on behalf of the FSCS. As a result, it is not just a financial loss for Keydata investors but also a potential breach of European privacy laws where they may seek recourse.
What lies ahead? FSA chairman Lord Turner told Prospect magazine recently that regulators are “not clever enough” to spot problem areas and act quickly enough to prevent or limit their damage”. Although this statement can be taken out of context as the UK authorities make contingency plans on the possible break-up of the eurozone following the unprecedented liquidity crisis, Turner’s statement rings true to me.
There seems to have always been a collapse of a financial institution or product type over my long career in financial services. I will not list them here as I would fill the whole of Money Marketing. We really do need more astute regulation that looks forward and does not always act after the event. I hear both Keydata and Arch cru were visited by regulators and no serious warnings were issued about either company and both created such hardship for investors and advisers. IFAs cannot be expected to take responsibility for the collapse of providers that have gained FSA approval. The crazy thing is that the majority of advisers have had nothing to do with either company but have been forced to put their hands in their pockets to sort out compensation.
Looking ahead, we should see further developments on auto-enrolment and the RDR, which will create opportunities for advisers who will have to bear the cost of changing their businesses if they want to be involved with both. We will need further regulatory guidance to ensure full compliance with both before considerable expenditure is undertaken.
I am reading that pundits believe regulation will be better when the FSA is disbanded and replaced with the Prudential Regulation Authority, the Financial Conduct Authority and the Financial Policy Committee as they will have a more “judgemental” remit. How this differs from what the FSA should have been doing, I will never know.
2012 will be marked as the year of the London Olympics but the backdrop will be a long period of weak growth and high unemployment as individuals and banks pay down excessive levels of debt.
Everyone needs strong and forward-looking regulation to ensure investors’ hardship is not amplified because of loss not due to the troubled stockmarkets but the collapse of financial companies which could have been avoided.
A happy new year to all.
Kim North (email@example.com) is managing director of Technology and Technical