Financial Services and Markets Appendices to the Minutes of Evidence


Memorandum by Wise Speke

  I write on behalf of a number of Northern stockbrokers who are very concerned about the speed with which your Committee has been charged to consider the various issues connected with the content of what is a very complex Bill. Bearing in mind the time it has taken since the announcement of the Government's views and the production of the Bill, it would seem unrealistic to expect your Committee to consider and determine the various issues raised within the proposed time scale. Whilst it is perfectly understandable that the markets would like to have the certainty of knowing what the position is likely to be, nevertheless the solution needs careful thought, and in our view it would be quite inappropriate to rush such important matters through to legislation because of time pressures.

  The FSA proposed eight principles which it plans to impose on authorised firms—these place responsibilities on firms to co-operate with their regulator and to treat clients in a fair manner. We suggest that the FSA should also be bound to observe the same general principles which would describe its responsibilities vis-a-vis the authorised community. This is an opportunity to create a "Financial Services Industry Charter", applicable to all who work in this area including the Regulator.

  We continue to feel that the FSA should not have the absolute power enabling it to investigate, make judgments, and impose fines without more accountability. Constraints might take the form of publishing the evidence upon which they make a decision to ensure that the rights of defenders and lawyers are safeguarded and that their actions are not in conflict with the European Convention on Human Rights. We feel also that there should be an internal review panel within the FSA, made up of market practitioners, to consider appeals against any FSA decision before an Independent Appeal Tribunal becomes involved, because many of the smaller firms could not face the costs of a full Independent Appeal Tribunal should they find themselves in such a position. The overriding principle should be that any firm facing disciplinary action should be presumed innocent until found guilty.

  On the subject of consumer compensation there is a proposal only to have "one" Investors Compensation Scheme. We feel that this is particularly unfair as the Broking Community would be lumped into one of the three proposed sub divisions, namely the rump of the Securities Industry. this would include the PIA members, and it is worth pointing out that IMRO and SFA firms by the end of the year 1996-97 have paid out only 1/10th of the compensation which was paid out to customers of PIA regulated firms.

  We are further concerned about the Ombudsman Scheme whereby a decision would be binding on the defendant, but if the complainant is not satisfied then they would have the ability to go to court for redress, which would be unacceptable if the claimant were an authorised firm. In the event of both parties being authorised persons, then either both parties should be able to take it to court or neither party, except on a point of law or fact.

  We feel as a group very unhappy that the cost of establishing and operating the FSA is already significant and is likely to rise. We believe that the FSA needs to be required to consider the costs arising from its activities and that it should be required to undertake a detailed cost benefit analysis in relation to all policy and rule proposals. Clearly there must be some mechanism to make the FSA accountable to the authorised community and to Parliament, and we suggest that it should be the responsibility of either the FSA non executive directors or the Treasury to ensure that the FSA is accountable.

  Many small firms are particularly concerned about the proposal to require firms to "detect and deter" money laundering, as currently they do not have the staff or the skills to undertake this "detection". This is a completely new development, and quite unfair to place this criminal investigation responsibility on individual firms. Clearly we all want to deter money laundering but cannot accept the responsibility or costs for "detection".

  We have noted the four regulatory objectives of the FSA, but bearing in mind the proposed London Stock Exchange Alliance with Frankfurt, we believe that the FSA must have responsibility for representing the interests of the UK Financial Services Industry in both the EU and Non EU countries on a pro-active basis and that this should be incorporated in the Act.

  I suppose the overriding concern is that the accountability of the FSA needs to be set out quite clearly in view of the extremely wide powers that are going to be given to it.

  I shall be most grateful if you should consider our concerns and relay the strength of them to your Joint Committee.

8 March 1999

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