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Should you support fight against FSCS?

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This follows an appli-cation originally made to the High Court by Fatchett in April, which argues that a number of companies that were declared in default – including Keydata, NDF Administration, Defined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 nic@inspiredmoney.co.uk

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Comments

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

  1. Nic

    Thank you for once more supporting the hard done by IFAs out there who have suffered the slings and arrows for over two decades and now many are on their knees begging for mercy which doesn’t come.

    I would dearly love to see someone succeed in overturning the FSCS decision but a judicial review is an expensive and pointless exercise which is how New Labour planned it.

    This is only my opinion and it is probably wrong but it is based upon my personal experiences in other JR cases, two of which are before the ECtHR.

    The only way to make this compensation system fair is to look at it from the ground up, why does it exist and why do consumers take more risks than they would normally simply because there is this “safety net”.

    Then we must ask…. I give up, commentating on the fringes is a waste of energy.

  2. Nic,

    As a journo who gets paid for stirring the fire of regulatory conflict perhaps you could see your way sending Mr Fatchett a few quid to help the fight against errrr….fascism. Just book it on expenses – lunch for 1 at The Ivy.

  3. ” Win or lose, there are times when you have to stand up for a principle.” Right Nic-principles like the long stop. You are against that for IFAs, so why do you pretend you have an interest in the injustice of the Keydata levy when you do not? You just like stirring things. That is how you earn a living.If you care as much as you pretend you do why not do as Simon suggests. After all without IFAs you would be in danger of losing your own income.

  4. Simon Manselll 8th July 2010 at 1:29 pm

    I was all for the JR …that was until Nic supported the idea! So it must be the wrong! After all he has been consistently wrong on every other topic.

  5. Alan Lakey - ADVISER ALLIANCE 8th July 2010 at 1:35 pm

    Nic’s article accurately reflects the predicament that most advisers find themselves facing.

    We know, categorically, that the FSCS levy determination is nonsense and we know that they are playing by the rules established by the FSA.

    Eqaully, as Evan Owen explained, a Judicial Review offers scant hope for most challenegs simply because it works within such narrow parameters. A court that investigate and illegimise nonsensical regulations would offer a far better solution.

    Adviser Alliance felt it appropriate to make a £500 donation towards costs because the argument is right. Had we confidence that it could result in success we would have given more and encouraged IFAs to stump up.

    We will see later in the year and for once I hope that I am wrong in thinking the chance of success as slight.

  6. Simon Kershaw 8th July 2010 at 2:32 pm

    I finally think that most of us are singing from the same hymn-sheet.

    This case deserves IFA support and £200 odd is peanuts compared with the next FSCS levy dumped wrongly on the IFA sector.

    Pay the man!

  7. Alan Parkinson 8th July 2010 at 3:08 pm

    This is not about winning or losing but about making the Regulator and its cohorts aware that the IFA sector is no longer the convenient dumping ground for any ad-hoc malaise that does not quite fit into any other box.

    It says that your conclusions are being scrutinized and will be rigorously challenged if thought to be unfair or unjust, so next time, try somewhere else because the IFA sector at long last can, and will fight its own corner.

  8. Simon, I think you must have me confused with one of your rich IFA buddies.

    The last time I ate at The Ivy was in 2003, courtesy of an IFA-only insurer anxious to promote products that people like you could flog to hapless pounters – thereby earning lots of lovely commission. Them were the days, eh?

  9. Simon Kershaw 8th July 2010 at 5:57 pm

    Nic,

    Good to know the IFA hating hack hasn’t gone soft in his old age.

    At least that should allow Anon 1.29 to breathe easier.

    It must be nearly a thirty year grudge – in fact, in the Balkans it would probably qualify as a vendetta.

  10. I would like to add 3 separate comments to this thread, which I hope may assist.

    Quote: “The fund would need to be transparent and every penny spent would need to be accounted for, preferably to an independent set of trustees.”

    1: The sums involved in aggregate, and any latent risk that more might be needed do imho call for exactly the form of audit and supervision that Nic is suggesting. I mean no disrespect to Gareth Fatchett, indeed I believe RL’s interests are best served by agreeing to adopt just such a proposal. In large part it was it was the lack of such a system that led to the Keydata affair, and it would be a supreme irony imho if lessons were not learned.

    2: As is recorded on other threads in this paper, I made a detailed submission to the FSCS before their eventual decision was made, and both the FSCS and the FSA are aware that I intend to prepare a further report on the lessons to be learned. In more recent e-mails shared with Evan Owen, Chris Cummings, Alan Lakey, and Paul McMillan, Gareth Fatchett has been made aware that my involvement may assist in the JR, and may address aspects not yet raised by him. Clearly, whether that is to be the case depends on whether sufficient funds are raised to allow the JR to proceed, but I am happy to place on record that I will assist, if the JR proceeds, and if Gareth eventually deems any contribution from me worthy of inclusion.

    3: I placed the “ifs” in the latter part of the above comment, because I believe there is an equally important, if not more important, aspect that needs to be addressed – namely should those affected by the decisions of the FSCS and the FSA be left to wait until they decide when it is time to review the whole system, and then be dependent in any consultation on the terms of reference chosen solely by the FSA?

    And by that I do not just mean those who pay any levies, I include as the major priority the ultimate consumer and the taxpayer, for whom the past few years have provided more than sufficient evidence, imho, that the current system devised by the FSA does not do what it says on the tin.

    Perhaps, given the costs imposed on each and everyone of us, costs engendered by a failed system of regulatory control, it is time to look for radically different ways to protect the consumer, and the taxpayer?

    Perhaps, when you think about it, that is, in the ultimate, the role of independent financial advice?

  11. Nics post at 4.09 shows his true colours.
    He has no interest in justice for IFAs. He HATES them with a passion.
    He likes putting the cat amongst the pigeons, and is just looking for an easy piece of news to report.If Gareth Fatchett were to win this case Nic would probably write about IFAs conning Keydata victims out of their compensation.
    As much as he appears to despise the IFA only insurer who wined him and dined him at the ivy, it did not prevent him accepting a free lunch.

  12. Mike Fenwick hits that rusty old nail on the head once again but it refuses to go through the thick skulls it is aimed at, why? What are they afraid of? Is it the fear of being shown up as a lousy regulator? I have some louse powder they can use. Is it the fear of being upstaged by an unqualified lawyer? What do qualifications prove, that you can pass an exam? It doesn’t prove you can think laterally, or even think! It just proves you can remember stuff which is required in order to pass.

    Some comments on here imply that Nic hates IFAs, is that a fact Nic?

  13. IFA’s have a choice they can roll over (AGAIN) or they can fight. These cavalier incompetents funded by millions of pounds taxpayers’ money have achieved precisiely nothing. That we now have an RDR to yet again reshape the regulatary landscape is proof.

    IFA’s put you hand in your pocket and send Mr Fatchet his £200. WIn or lose it will be worth it just to let them know they are truly out of order.

  14. Answer Evans question Nic.

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