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Rough justice in financial services

The Treasury select committee report on the retail distribution review and the subsequent attempt by the FSA to derail it has highlighted the most important issue facing financial services. It is neither the RDR nor the brass-necked effrontery of the FSA but a far more worrying matter – how justice is inexorably being leached away without any form of recourse for those affected.

Robert Kennedy para-phrased Gladstone by stating: “Justice delayed is democracy denied.” These words resonated when the FSA flipped a metaphoric finger at the TSC. I recalled the time I levelled a complaint at the regulator, to which it promised “a substantive response”. More than six years later, I am still awaiting any kind of response.

The recognised authoritative work on the British Constitution is An Introduction to the Study of the Law of the Constitution by AV Dicey. Within this tome, he verifies Parliament as the supreme law-making body and espouses the fundamental principle that everyone is equal before the law and no person is above the law, including those in power. He highlights a further principle, confirmed by the legal case Entick v Carrington, that people are free to do anything unless the law says otherwise.

The Financial Services and Markets Act says otherwise and in this regard defies the Magna Carta, which states: “To no one will we sell, to no one will we refuse or delay right to justice.”

When debating the FSMA, Howard Flight, MP, homed in on this point. He said: “It must not fall foul of our inherited liberties, which go right back to the Magna Carta.”

Sadly, this is exactly what has come to pass. Our individual liberties have been and continue to be eroded by the imposition of bad legislation, bad intentions and the singular lack of accountability enshrined within the act.

Another telling observation was: “One of the key issues that emerged in our discussion related specifically to the legal issue in respect of human rights. It is essential that the Government correctly determine that issue.” Thank you, Dr Vincent Cable.

Justice in financial services does not exist – it is a sham, a sorry joke. The rights of firms and individuals have been revoked by a leviathan that has been granted unlimited powers, despite the promises made by Patricia Hewitt during the FSMA debate. She said: “I want to stress that statutory immunity will not apply where allegations are made that the FSA has acted in bad faith or breached the Human Rights Act 1998. Depending on the facts, such cases might result in successful action for damages.”

Injustice also walks in other places, as proved by my inability to locate any mechanism by which Lord Myners could be brought to task for misleading the Human Rights Committee when it was investigating the lack of a long stop. Apparently, Parliamentary privilege ties the Parliamentary Commissioner’s hands and the various ethics committees inform that making untruthful statements does not fall within their remit.

Not only are we denied the use of a 15-year long-stop defence but we do not have any worthwhile means of taming an out-of-control regulator. Lies and distortions have found their way from folklore to established fact and have been used to buttress the RDR proposals in such a way that even normally wise national journalists have applauded the suggestions as a victory for consumers.

George Orwell must surely have envisaged this encroachment of freedom when he opined: “In a time of universal deceit, telling the truth is a revolutionary act.”

Alan Lakey is partner at Highclere Financial Services


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Do IFAs’ in the rest of Europe have the protection of the statute of limitation?
    When can we test a case in the European court of Human Rights Alan?

  2. Well said Alan, you are the one man who dares to speak the truth!
    I’m 100% behind you as I think many IFAs are but are to terrified of the FSA to say so.

  3. Alan

    I have to disagree with you –

    Although the FSA isn’t (and never has been) perfect – the industry generally hasn’t shown itself in a good light.

    Rightly or wrongly, the industry has far to often put itself infront of it’s clients needs.

    Yes, a significant minority can always say ‘I have always done best for my client’ – but I bet most advisers will honestly admit ‘they could have done better for their clients, at various times – be it research, due diligence or even customer service – never mind the actual quality of the advice’.

    In other words, the carrot approach hasn’t worked, and so the ultra big stick is being used on everyone.

  4. Very well put Alan. I copy below a recent MM article that should be sent to all IFA’s and recommend that they take the action requested in said article. This is the time to stand up and be counted and stop the whingeing and take action today. DO IT NOW!!
    Economic and Monetary Affairs Committee member urges IFAs to write to their MPs over RDR as he calls for harmonisation of rules for financial advisers across Europe.
    There needs to be a pan-European policy on financial advice to avoid rules across the continent becoming so disparate that more firms are encouraged to passport out, according to Godfrey Bloom, MEP and member of the European Parliament’s Economic and Monetary Affairs Committee.
    Mr Bloom has recommended that all IFAs write a letter to their MPs to say that “something must be done” about the Retail Distribution Review (RDR), warning that “it is not feasible for the Financial Services Authority (FSA) and the RDR to continue down this path”.
    He said: “In my committee it has certainly been flagged up that it does not really matter what the FSA says as it is no longer in its remit.
    “There will have to be a pan-European policy on financial advice. I am totally against this but it looks like we need this.
    “We can’t have one set of rules if you do business in Dublin, another if working in London and yet another for Paris. This is not sustainable and will encourage more passporting out.
    “It is not feasible for the FSA and the RDR to continue down this path. I will make life impossible with my committee.”
    Mr Bloom claimed the latest rift between the Treasury Select Committee (TSC) and the FSA has proved that the regulator is working “outside the general principles of English law, which has been our case all along”.
    He said: “We have bred a monster that is out of control.” Mr Bloom pointed out that there was a “significant amount of apathy” from IFAs. He said: “For every letter I get thanking me for supporting IFAs, 19,000 are sat at home and wringing their hands.

    “All registered IFAs need to write to their MPs to say they don’t want to be told how to run contracts between themselves and the clients. This has no place in a free society.”

  5. If the percentage of all complaints against IFA’s which end up being referred to the FOS is anything to go by ~ now less than 2% I believe, having fallen steadily and consistently over the past five years ~ the ‘significant minority’ to which Paul Howard refers is rather more than just a minority. I suggest it is a significant majority.

    Of course most advisers would have to admit to past instances of having done some aspect of their job less than perfectly. But the point is that standards throughout the IFA sector are demonstrably improving (indicating that the carrot approach clearly is working), whilst standards throughout the retail arms of many of the banks are not or, if they are, then they’re doing so at a very much slower rate.

    So where is the risk-based, proportionate and targeted approach to regulatory inspection and enforcement set out in the Statutory Code of Practice For Regulators to which the FSA, like all other UK regulatory bodies, is supposed to adhere?

    Alan’s point is to question why the IFA sector is being beaten about the head with the same stick as that finally being wielded in the direction of the banks. Such an approach is neither risk-based or proportionate or fairly targeted. Is it wrong to call for those Statutory criteria to be observed by the regulator?

  6. Paul Howard
    you can disagree with Alan all you like.
    It will not alter the fact that the regulator acts outwith the law. Nor will it alter the fact that IFAs’ have been singled out as not being “worthy” of the protection of the law as afforded to EVERY other citizen.
    Do you include yourself in the “significant minority”?

  7. There are no doubt several issues arising out of the FSA’s determination to put into effect the RDR; for me one is now a lot more significant than the others.

    The TSC, comprising elected MPs, have sat and listened to evidence from the entire industry over many months. They have produced a repoort which states, inter alia, that the RDR should be delayed for at least a year. The FSA, comprising no elected representatives,has apparently with impunity rejected this and other recommendations.

    Irrespective of anyone’s views about the RDR, its implementation date and its proposals, our elected representatives are being ignored-indeed, snubbed- and because this is happening the sovereignty of Parliament is being threatened. I simply do not understand how this can be tolerated in what is supposed to be a parliamentary democracy.

  8. I agree with Alan. The principal rule of law in this land has been abused and bent by the FSA so that IFA’s and all those regulated by the industry have a different and less fair set of laws to anyone else in this country.

    The FSA have abused their position as far as the normal laws of this country are concerned and this has nothing to do with our industry having a bad reputation as Mr Howard says. We should all be treated fairly under the same laws regardless of reputation or industry and we are not.

    Why do all those in the NHS for example not paying towards the £15 Billion compensation bill currently budgeted for over the next 10 years most of which is due to clinical negligence and paid by the tax payer?. We have to pay for our mistakes not the tax payer so why do doctors etc. not pay towards theirs, if they did it may reduce the amount of clinical negligence?

    Why do we have to pay for a free “advice” service when other industries do not?

    If we have to disclose how much we earn or charge then why doesn’t everyone have to do this?

    If we have to take exams to prove our worth then surely we need the same from our MP’s and regulators as after all they are dealing with much bigger sums of money than most IFA’s ever will and we have already seen the financial mess they have gotten us all in but they have no accountability or even any responsibility for their actions yet we are expected to be fully accountable and responsibile for ours and until we die !!

    What other industry is responsible for the advice they give until the day they die? None that I can think of even in the NHS.

    This Government promised us “fairness, responsibility and justice” well it is time we made them abide by those words and please lets not have those who think we need to wait for some imaginary silver lining, that is why we have the problems we have now because everyone is waiting for some sort of miracle and it never happens while the situation gets worse.

  9. It sometimes appears our rights are being violated with contempt and that not much is happening in response.

    I can assure readers that this is not the case and that an announcement will be made in due course.

    You will, I hope, appreciate that there are times when it is premature to provide information.

  10. It was very disappointing to hear the TSC ask the FSA if they would consider a longstop. The question should have been “What is your legal basis for overriding statute?”
    Agree with Blair & Michaels comments.

  11. Lost my earlier post – so here is the short version!

    Thanks for the replies.

    One thing though – would have it not been much better, as one vioice if we had replied to the FSA

    “Yes, we know we can do better, and your RDR points look like they will assist greatly – however, along with that can the Long Stop Issue and FSCS cost issues be looked into at the same time?”

    Rather than ‘no, we don’t like that/shove head in sand for 3 1/2 years”?

  12. The FSA is a member of the executive. The executive branch of government is the part of government that has responsibility for the daily administration of the state bureaucracy.

    The division of power into separate branches of government is central to the idea of the separation of powers, for example in authoritarian systems, such as a dictatorship the different powers of government are assumed by one person, the executive branch ceases to exist.

    The separation of powers is designed to distribute authority away from the executive branch—an attempt to preserve individual liberty in response to tyrannical leadership throughout history. The FSA is an unelected, unaccountable branch of the executive with quasi judicial and legislative powers. In short it is unconstitutional!

    In January 1215, the barons insisted that, as a condition of their support, King John execute a charter that recognised their liberties as a safeguard against further arbitrary behaviour on the part of the King. This was the Magna Carta.

    When King Charles 1 was placed on trial for waging war on his own people in 1649, he sat on the steps of Westminster Hall and conducted his own defence: By what right do you accuse your King, for the King is above the law and his right to rule was God given.

    The court condemned him to death on 30th January 1649 and it was declared that no man, woman or institution is above the law!

    Yet the unelected FSA is above the law and parliament and it is not accountable to the elected Treasury Ministers or to an elected Parliament. This was confirmed by Hector Sants at a Treasury Select Committee meeting on 9 March 2011 where Sants told TSC Chair, Andrew Tyrie MP, that if the TSC didn’t like it then Parliament needed to legislate to remove the FSA’s non-accountable status!

    As Shakespeare Quotes – Something Is Rotten in the State of Denmark!

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