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Will the new regulator mean a better deal for IFAs?

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court

The Treasury has recently published its White Paper and a first draft of the bill which is to implement its reform of the regulation of financial services.

Much of the detail is set out in the draft bill and this will now undergo 12 weeks of scrutiny by a Parliamentary committee.

There have already been two earlier consultative papers, and it is worth looking to see how the Treasury’s proposals have developed. The White Paper also provides a summary of the responses received to the last consultation which ended in April.

The Treasury’s primary concern is to correct shortcomings, actual and perceived, in the regulatory structure to ensure as far as possible that the failures of the past few years are not repeated. But those whose livelihoods depend on there being a good and fair regulatory system are concerned to ensure that the opportunity for reform is grasped and that those aspects of the current system which are, or could be, oppressive and unfair are also corrected.

What are the big issues? There is, of course, the Treasury’s list. Top of that is the restructuring of the regulatory bodies, the creation of the Financial Policy Committee of the Bank of England, the hiving off from the FSA of the prudential supervision of banks, insurance companies and big investment firms to the Prudential Regulation Authority and the refocusing of the FSA, including giving it more power so that it becomes more proactive in the protection of consumers.

Those whose livelihoods depend on there being a good and fair regulatory system are concerned to ensure that the opportunity for reform
is grasped

The FSA will be renamed the Financial Conduct Authority and it will continue to regulate the conduct of the entire industry as well as the prudential aspects of all firms not subject to the PRA.

On the other hand, the real concerns of small and medium firms are how the changes in the powers and duties of the FCA will affect them.

First, the proposals for the reform of the FOS, which Anthony Speaight, QC, and myself presented to the Treasury in April, have been noted.

The White Paper says: “A small number of respondents felt that the opportunity to fundamentally reform the FOS had been missed and urged a full review of the FOS model.”

But there is no suggestion that the Treasury will embark on that review or consider reform. That is a serious matter. Unless the Treasury has second thoughts, all financial services firms will be subject to the compulsory jurisdiction of a body with power to order a firm to pay up to £150,000 without regard to the rule of law.

The FOS will continue to be an affront to the rule of law. We must all do what we can to get Parliament to take this matter up. The opportunity for substantial reform will not recur for many years.

Second, the FCA will acquire even more power than the FSA now has. For example, it will be able to intervene in circumstances where it considers that a product or product feature is likely to result in significant detriment to consumers.

There is to be a new power to take swift action to prevent consumers from being misled and to publish the fact that it has done so.

These new powers are to be welcomed, provided there are proper safeguards against uninformed, oppressive or arbitrary action.

More controversially, the FCA is to have power to disclose the fact that a warning notice has been issued. Here, the need for proper safeguards is even greater. There will be safeguards, but will they be adequate? And how is the FCA to be held accountable for its actions and its failures to act?

Accountability is thus a major issue. The FCA, like the FSA, is to be independent of the Government. Strictly, it will not be accountable to the Government but it will be required to report annually to the Treasury, setting out how well (or not) it has carried out its job. That report will be laid before Parliament.

The FCA will have to hold an annual public meeting at which it will permit a general discussion of the contents of the report and allow questions relating to its year’s performance. It will also be under general duties to consult.

In a specific case where a firm has suffered at the hands of the FCA, those general duties to report will not be enough.

The question for the firm is how can it get redress for wrongs it has suffered? The answer depends firstly on the nature of the complaint. If the complaint is about the action which the FCA has taken under its statutory powers, for example, disciplinary action, the firm must appeal to the tribunal.

The FCA will generally be immune from being sued, unless it has acted in bad faith, so, in the vast majority of cases, it cannot be sued.

The FCA is unlikely to be subject to the jurisdiction of the Parliamentary Ombudsman but there will be a statutory scheme for the investigation of complaints about the FCA by an investigator who is independent of the FCA. It will be very much the same as the present scheme for complaints about the FSA.

Currently, if anyone has a complaint about the way the FSA has conducted itself in the exercise of its functions (except its legislative functions), in the first instance, the matter is taken up with the FSA itself.

Such complaints are likely to relate to mistakes and lack of care, unreasonable delay, unprofessional behaviour, bias and lack of integrity. The FSA investigates the complaint and takes action, if appropriate, to put matters right.

If the complainant is not satisfied with the outcome of the FSA’s own investigation, he or she refers it to the statutory investigator, the Complaints Commissioner, who is independent of the FSA. He is Sir Anthony Holland, who in his varied career was also once the Principal Ombudsman to the Personal Investment Authority. He investigates the complaint. If he upholds it, he recommends to the FSA what it should do to provide redress. This could be no more than an apology. But could also include action to put the matter right, where that is possible, and an ex gratia payment as compensation for any loss suffered.

According to his most recent annual report, in the year ending March 31, 2011, the Complaints Commissioner received 167 new and re-opened complaints. Given the general level of dissatisfaction with the FSA felt by many in the industry, it is surprising that there were not many more complaints coming to him.

There may be several reasons for that. One could be that firms are nervous of complaining in case that influences the FSA against them. Another could be that the office of the Complaints Commissioner is not as well known as it should be.

But given that a complaint to him is the only effective way of securing any redress for actions or omissions of the FSA, his role should be better known and better used. No one should hesitate to take a grievance or complaint firstly to the FSA (FCA) and, if still dissatisfied, to the Complaints Commissioner.

If the number of complaints coming to him grows, his influence will increase – and that can only be a good thing. He performs the essential function of holding the FSA to account for its actions and omissions that fall within his jurisdiction.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. What about the Longstop or lack of it?
    That is the worst case of without regard to the law and most certainly breaches human rights.

  2. The longstop issue could be resolved tommorrow if the F-pack were willing and NOT keeping an eye out for their future employers.
    ALL they need to do is from RDR 2013, when clients will have to agree what they are paying for an ongoing service is for the F-pack to accept that where the CONSUMER chooses NOT to pay for an ongoing service / no service is being provided and hence the 15 year longstop should apply. If the consumer engages a new adviser on that 15 year period and the new adviser FAILS to correct a mistake, theyshould then be liable for their own professional negligence for 15 years from THAT mistake, if they do not provide any ongoing service.
    Where an ongoing service is being provided, everytime a review is undertaken, the longstop should have a fresh 15 year period as the adviser could be said to be professionally negligent for not picking up and correcting their own earlier error.
    This would give certainty to the adviser, to the PI insurer AND would be treating the consumers fairly as it would give them 15 years of protection if they don’t pay for ongoing advice and ongoing protection from professional negligence all the time they contracted for an ongoing service.
    Am I being logical?
    Or does someone want to tell me why the F-pack think infinity is MORE logical or even acceptable. It is NOT morally acceptable to hold someone infinitally liable and requie them to infinitly defend a case, especially when we being given no legal recourse to trial by jury for FS business.

  3. Green Eyed Monster 6th July 2011 at 10:48 am

    Yes Phil, you are being logical. However the logic of the long stop was to acknowledge that people’s memories diminish over time and could not be relied upon to be accurate at some distant point in the future. Hence the courts decided that evidence given beyond 15 years would be unreliable and could result in a miscarriage of justice.

    The previous government in their ‘wisdom’ appoved the removal of the long stop from the FSMA2000.

    We may need the assistance of the ECHR to have it reinstated.

    Has Gordon admitted yet who told him the FSMA2000 was compatible with the Human Rights Act.?

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