Financial Services and Markets Appendices to the Minutes of Evidence


ANNEX

  1. This evidence is directed principally to the first question referred to in the Press Notice No. 2 of 2 March 1999 "Proposed arrangements for the accountability of the FSA".

  2. Accountability: The lack of accountability by the Financial regulators—FSA, SIB, and most especially the ICS, continues to be the chief cause for complaints from private investors. Whereas of course it is recognised that the ICS is not a financial regulator per se, because of its seamless join with the FSA it attracts an equal share of the criticisms which follow hereafter.



  3.1 Accountability of KWIAG: It is relevant to the integrity of this evidence that the Joint Committee (especially those members who are among the "new entry" of May 1997) may be fully aware of the credentials of KWIAG members.

  We are mostly in our 70s and 80s; some are older. In the 1940s and thereabouts many of us in what should have been our "salad days" were variously engaged in the Armed Services, in Industry, and in Agriculture, in fighting for democracy and natural justice. In what should be our "tranquil twilight days" we find ourselves tired, mentally and physically, with having once again to fight for democracy and natural justice—this time against the very organisations which we had been given to understand were formed to protect our interests.

  3.2 KWIAG has no political affiliation. We are the only genuinely voluntary action group to have been invited by a Minister of HM Treasury to give our views (September 1995), in person.

  4.1 Accountability of Government: On 18 April 1994 Mr Anthony Nelson (MP), the then Economic Secretary to Her Majesty's Treasury, in a letter to Sir Anthony Grant (MP) wrote, inter alia, "The chief concern of the Government in drafting the Financial Services Act was to provide a high standard of protection for investors". I and my KWIAG colleagues took that unequivocal statement by the Minister absolutely at its face value.

  4.2 We also note that, "the detailed ways in which the system is operated are matters for the regulators". (See Addendum ONE).[11]

  4.3 Had the 1986 Financial Services Act functioned as the then Government intended—"to provide a high standard of protection for investors"—there would never have been the need for the formation of the Knight Williams' Investors Action Group. (Anyone who still thinks otherwise is palpably ignorant of what has happened in financial regulations over the past decade).

  4.4 So what went wrong? This is a question which needs to be answered in the past as well as the present tense—the past tense referring to matters of regulation under the 1986 FSA, and the present tense in relation to the draft Financial Services and Markets Bill.

  4.5 It is important to remember that the undertaking that "the chief concern . . . was to provide a high standard of protection for investors" has never been repudiated by the previous Government, nor by the present Government.

5.1 ACCOUNTABILITY OF SIB/FSA

  5.2 To answer first 4.4 above, this is what went wrong with the operation of the 1986 FSA by the Regulators:

  5.3 In rapid order, the Boards of Directors of, certainly, SIB, PIA, ICS, and especially the FSA, were infiltrated (with the consent of HM Treasury) and thus dominated by representatives from the boards of City organisations. As a consequence the FSA Board's impartiality in the matter of protection for investors was compromised.

  5.4 To its credit, the present Government has identified the need—prior to the Draft Bill being debated by Parliament—for matters to be scrutinised by an unprecedented Lords/Commons Committee.

  5.5 In a letter to the London Evening Standard on Monday 22 March 1999 Mr Michael Blair QC, General Counsel to the Board of the FSA, hastened to put the FSA interpretation of ACCOUNTABILITY. (See Addendum TWO).1

  5.6 Had Mr Blair seen Mr Anthony Nelson's letter to Sir Anthony Grant (referred to in paragraphs 4.1-4.2 above), he—Mr Blair—might have modified the optimism expressed in the final paragraph of his letter to the Evening Standard. In this connection Mr Nelson, himself, underlined the weazel words "look again".

  5.7 So in 1994 even a Treasury Minister was having problems with the lack of accountability shown by the then Chairman of the Government's Chief Financial Regulator. Nothing has changed.

  6.1 ACCOUNTABILITY OF FSA AND ICS: It has been the experience of KWIAG members that the ICS, in particular, frequently adopts an adversarial posture when posed with a challenge which it finds difficult to defend. Invariably, it reminds private investors that they have a remedy in the Courts or that they can apply for a "judicial review". As the ICS knows full well both of those options are denied to most private investors because of the cost of litigation and the excessive time involved.

  6.2 On the other hand, when KWIAG has invited Sir John Wickerson (the ICS Chairman) to put the ICS manipulation of the Quantification Date to a test case in Court, he has backed off from doing so.

  6.3 Last year Sir John Wickerson was asked the perfectly legitimate question as to who, on the Board of the FSA, nominated and seconded Ms Foster-Back for a directorship of the ICS. (The response to the simple request for information may be read in Addendum THREE).1

  6.4 If one could only choose a single example of the FSA's total opposition to the concept of accountability, then one need look no further than the final sentence of Mr Michael Blair's letter of 10 March 1998 (see Addendum FOUR)1 in response to Kenneth Jordan's letter of 3 March to the Chairman of the FSA (see Addendum FIVE).1 (Mr Jordan's letter of 12 March 1998—Addendum SIX1—concluded that particular correspondence).

  6.5 Therefore, I would earnestly ask that the recommendation contained in the Third Report Volume 1 of the Report and Proceedings of the Treasury Committee (page vi, paragraph (r)) be enforced forthwith. It reads: "We recommend that minutes of FSA board meetings should be published, with the minimum of deletions for reason of confidentiality". It is something we in KWIAG have asked for on many occasions.

  7.1 In Conclusion: Lord Acton, a Liberal MP and friend of Gladstone, would have understood the problems private investors have with the Regulators, who use their unprecedented immunity from prosecution for damages by reason of their private limited company status. I am certain he would have condemned the use of secrecy by the ICS and the FSA as a means of denying even-handed justice to private investors.

  7.2 Lord Acton said: "The nation that keeps its archives secret has its history written by its enemies".

  7.3 On behalf of the members of KWIAG and other private investors I do hope that the Joint Committee will endorse the spirit of the sentiment expressed in Mr Anthony Nelson's letter of 18 April 1994 and will seek to ensure that the flaws which have arisen from the 1986 FSA will not be repeated in the Financial Services and Markets Bill.

  7.4 Above all, I would urge that the status of private limited company for Regulators (see paragraph 3 of Addendum SEVEN),[12] which does nothing in the way of protection for private investors be SCRAPPED.

March 1999


11   Not printed. Back

12   Not printed. Back


 
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