If you felt a tremendous injustice was being foisted on your business because of the incom-petence of the financial regulator, would you want to do something about it?
That is the question being considered by thousands of IFAs who have been asked to help fund a legal challenge to the £80m levy by the Financial Services Compensation Scheme.
Solicitor Gareth Fatchett, a partner at the firm Regulatory Legal, is calling on financial advisers to stump up between £150,000 and £200,000 by the end of July to press ahead with a judicial review against the levy.
This follows an appli-cation originally made to the High Court by Fatchett in April, which argues that a number of companies that were declared in default – including Keydata, NDF Administration, Defined Returns, Arc Capital and Income – were wrongly categorised in the invest-ment intermediation sub-class for FSCS purposes.
Money Marketing reported the High Court found that the application raised a number of “arguable points” over whether the FSCS had “erred” from the law.
Justice Beatson, of the Queen’s Bench division of the High Court in Birm-ingham, was quoted as saying: “The grounds raise arguable points in relation to consultation and whether the defendant’s categorisation of the activities that Keydata was carrying out erred in law or was otherwise flawed on public law grounds.”
If Gareth Fatchett were able to set up some fighting fund where donations could be made that did not tie IFAs into accepting individual liability in the event of mounting legal costs, I would be seriously tempted to chip in a few quid
A full hearing may now take place in the autumn – provided Regulatory Legal can raise another £150,000 to £200,000 by the end of this month. Fatchett points out that 1,000 IFAs stumping up a couple of hundred quid each is all it would take. So far, he has been funded by 200 advisers, who have contributed a total of £40,000 to date.
Should he get the money?
Aifa, which refused to take action against the FSCS earlier this year, is warning advisers not to take the legal route.
Last week, it pointed out that even if the judicial review is successful, it is likely that the FSCS would appeal against such a verdict, dragging the case through the legal system for years at the risk of increased costs for those supporting the challenge.
Based on this, I would be torn. On the one hand, as I have argued before – to the surprise of one or two IFAs who read this column – the original classification and continued confirmation by the FSA that Keydata and other firms like it were part of the investment intermediation sub-class is a disgrace.
It is a typical cock-up by a regulator which, if reports published last month are true, was once again powerless to act in the Keydata debacle.
On the other hand, although I apologise if I appear to be doing him a disservice, I am not personally convinced by Gareth Fatchett’s case. My suspicion is he did well to convince a judge that this case had legal merit and should be taken further.
Still, we are where we are, which is why, notwith-standing what Aifa says, if Fatchett were able to set up some fighting fund where donations could be made that did not tie IFAs into accepting individual liability in the event of mounting legal costs, I would be seriously tempted to chip in a few quid.
The fund would need to be transparent and every penny spent would need to be accounted for, preferably to an independent set of trustees.
Some might argue that all this is a distraction from the consultation paper being promised by the FSCS this autumn, which offers the prospect of long-term reform of the compensation levy system.
I don’t see that, myself. I have a feeling that the FSCS (and the FSA, for that matter) work best when staring at the barrel end of a loaded shotgun. Win or lose, there are times when you have to stand up for a principle.
Ultimately, the ball is in Gareth Fatchett’s court. He needs to persuade IFAs that their liabilities in this legal battle will not escalate out of control. If he can do that, he deserves your support.
Nic Cicutti can be contacted at firstname.lastname@example.org