Memorandum [Name and Address supplied]
I am a compliance manager at a firm of IFAs
and thus experience at first hand the effects of the regulations
and decision-making processes of both the FSA and the FOS. Our
practice has always been to be at the forefront of the regulatory
changes and my role was originally to assist in this function
as the implementation of new regulatory requirements became too
burdensome for a single individual. My company are not prepared
to make a submission as a corporate body because they feel that
either such a submission would be cast aside (altogether too familiar
under the current regime) as a whinge or could place the company
under the scrutiny of an antagonistic Regulator. As described
below the Company could be legitimately (but outside the bounds
of natural law) crushed by those rules (rules made by the regulator
and interpreted in any fashion of their choosing) and the Directors
effectively outlawed from financial services.
I have submitted this as an individual rather
than in my capacity on behalf of the Company. I am not a Director,
nor am I a shareholder. I am mindful of the powers of the FSA
and would ask that any evidence I give to your house allows protection
for my employers from the FSA. I am most disheartened to be working
in an industry, which engenders the fear of the regulator. This
fear is not the fear of doing anything wrong, it is the fear of
My experience has been that the FSA is genuinely
out of touch with the IFA market as exemplified by the problems
generated by their handling of our Professional Indemnity Insurance
queries. In June 2002 we were offered non-compliant terms by our
underwriters. Previously these had been acceptable by the FSA/PIA
but there were some signs this may no longer be acceptable by
FSA and we sought their guidance. Four months later, after much
pressing for a reply, the FSA designed to address the issue and
we finally spoke to a human, who could make a decision. We were
advised to take the PI cover offered. Unfortunately, because of
the time delay the underwriters could no longer offer cover because
their capacity was now full.
The PI market had since collapsed, because underwriters
cannot write risk for an industry, where the regulator changes
the rules after the event and future liabilities cannot be predicted.
As a result the company I work for has no PI cover and has been
unable to obtain cover subsequently. We have now been advised
that our premission to continue business may be removed because
we do not have PI cover. If this happens, many employees will
be out of a job, and all because the FSA wouldn't answer a question
which only they were in a position to answer.
We have been informed that the FSA cannot be
sued for this. The company I work for cannot leave the FSA's regulatory
control (and shut down) without the FSA's permission. There are
no bodies we can take our grievances to.
I am concerned about many aspects of the way
retrospective legislation has been applied. The pensions review
has been, to a large extent, expunged at a great cost to too many
in the industry. Some deserved it and some did not. C'est la vie.
The new witch trial appears to be the endowment review.
In a court of law, if the plaintiff asks for
reparation to put themselves back in the position they would have
been in, if the accused had not been negligent etc., then the
plaintiff is required to mitigate the loss as much as possible.
Similarly if such a loss is demonstrated, then the loss would
only be calculated based upon when the loss occurred. With the
endowment review this procedure is ignored. The current surrender
value (for with profits policies suffering market value adjusters
this exacerbates the situation significantly) is used to determine
the basis of the loss. The current surrender value is not the
true value of the policy at the time of the determination of a
loss (including penalties applied arbitrarily by the insurance
company). This artificially reduced value is then applied to a
calculation of the "loss" to the plaintiff and then
a payment may be made to the plaintiff based on the costs they
would have had to make using a repayment mortgage. Look carefully
at the way the loss calculation is forced to be made. Ask if a
respected judge would make the same determination. Also ask if
the plaintiff should be allowed to participate in future profits
should the markets recoveror should such profits be assigned
to the advising company.
I will give some examples of the fractal nature
of the FOS determinations later in this missive but ask that there
should be some check on the procedures determining future "hot-potatoes"
whipped up by the media and how they should be (a) investigated,
(b) determinations of any recompense derived and (c) an outside
adjudicator (not the ombudsman system) for appeals by the accused
to refer to.
I have been asked to give specific examples
of areas of concern relating to justice being circumvented by
the regulator. Please remember I am an individual without the
backing of my employer and the "whistle blowing" rules
applyI am anxious for my Company and my job and my familynot
in that order.
The company I joined was involved in the mortgage
business in a big way and found in the late eighties and early
nineties that endowments were a good buy for many purchasers.
The Consumers Association agreedsee their best buys at
the time. Now it appears that endowments were a bad thing. The
Consumers Association now have a dedicated website promoting complaints
(or frauddependent on how you view financial crime) about
the sale of endowments. There were bad sales practices out there.
What I cannot condone is the bad interpretations practices currently
in place today.
With regard to the sale of an endowment the
FOS has provided four differing interpretations of "medium
risk" and how this should be applied as suitable in the sale
of an endowment. These are actual cases I have been involved in.
All of them have assumed that a recorded attitude to risk at the
time of the sale should be either disregarded, ignored or interpreted
as being inappropriate. This interpretation has been in the complainants
favour. There was at the time of these sales no requirement for
the client to make a sworn affidavit to the effect that their
attitude to risk was X Y or Z. It appears that the current ombudsman
system requires it.
The Chartered Institute of Insurers have very
specific views regarding the need for life cover in the event
of effecting a mortgage. The presence of a mortgage necessitates
a requirement for life cover. There is NO mitigating factor. The
basis of the examinations required to be taken by advisers (FPC
1 2 & 3) by the regulator state this in their course material.
The FOS have twice denied this is the case with our company in
making their determinations against the company I work for. This
implies that the FOS is not only a law unto themselves but the
law is malleable, wind driven (the winds of political rather than
lawful change) and open to a level of interpretation which would
make the most fundamentalist reactionary wince with reticence.
Another actual case which causes concern is
best summarised by the following:
If there was an instance where the liability
for advice was passed on to a third party at a specific date,
one would assume that any future liability would be either shared
or the period of liability apportioned between the defaulting
parties. This is not true of the FSA nor of the FOS. I can provide
a VERY specific example of this if pressed but am bound by the
fear expressed earlier and client confidentiality. There is NO
opportunity to raise these fears openly nor is there an opportunity
to appeal decisions made by the FOS. The FOS did not even deign
to investigate the possibility of the third party being liablethey
might not have been but that is irrelevant. The company must pay
and the client given cash. Even if there was no liability.
I have more to say on this subject but would
ask that the House consider the fact that I am only an individualnot
a multinational, not a consumer watchdog, not a media company,
not a Regulator. I do not even have the backing of my employer
(consider the fact that I am a compliance managermy job
relies on the complexities generated by a careless regulator)
I am simply a person who sees justice being subverted, to what
end I cannot say.
I humbly ask that the views of the less financially
influential are actually addressed and weighed not by their fiscal
worth but by their real worth.