Saturday, November 15, 2008

FSA and the Limitation Act 1980, as amended

I understand the FSA is unlikely to change its policy with regard to the 15-year long stop. Apparently it says it has "not been able to find the case" where the benefits to advisers of a time limit outweigh the disadvantages to consumers.

When legislators produced the Limitation Act 1980 and judges acted upon it, they sought to balance the effect on both parties to any action and came up with a 15-year period which, whilst giving protection to a litigant, also provided for the defendant not to be put into the position of defending 'stale claims' without access to the evidence.

This is what the FSA are deliberating on and they appear to be reaching a difference conclusion to that reached by parliament and the judiciary with regard to limitation. The fact that there is no mention of the 15 year limitation in the FSMA 2000 is no defence because that legislation has not replaced any passed previously that the financial services wishes to use as a legitimate legal defence. How can their opinion override existing legislation which was passed by an elected parliament?

If they are acting as a consumer body then they cannot be allowed to make such judgements as they are by definition putting the interest of one group above that of another and then allowing an arbitrary Ombudsman to conjure up a reason to uphold a complaint which would not succeed in a court of law.

The law and natural justice requires balance and provides for it, outside financial services, and that is what we want from the FSA, if however the FSA are still unwilling to allow a 15 year long stop the they should impose restrictions on the FOS which will find against an adviser who has no file despite the fact that the claimant cannot supply documentary evidence to prove that he/she was misled by some sort of implication that a long term contract might be guaranteed in some way.

For stale claims the FOS should place the burden of proof on the complainant and if no documentary evidence is produced, for example a written promise that a mortgage endowment would repay the loan then the case should be dismissed without any investigation or resulting fee.

When I asked David Kenmir if the FSA could override statute he was very quick to put it in writing that it couldn't and neither could anyone else, or any other body, that means the regulators and the Ombudsman cannot ignore the 15 year long-stop, however, we would be happy to come to an arrangement where the complainant's evidence makes it clear that there should be no time limit because the firm has made a contractual warranty.

Until this is resolved we will continue to have this heated debate about something which is patently unjust and damages the advice sector without any fair and reasonable benefit for consumers.

Wednesday, November 12, 2008

Advice sector needs more work on TCF ??

The regulators must be having a laugh!

The FSA has allowed 11, 12, 19 or 33 (FSA doesn't don't know how many!) companies to mislead policyholders and IFAs for two decades yet fights to defend them tooth and nail, it has now appealed to the High Court against a perfectly reasonable Information Tribunal ruling that said life offices' human rights were not being infringed. What about the human rights of retired IFAs? What about the human rights of all those misled policyholders?

TCF should be applied to this LAUTRO shambles instead of brushing it under the carpet.

Wednesday, November 5, 2008

GABRIEL - FSA financial reporting

Open letter to Hector Sants

Why has the FSA forced the IFA community to act as Beta testers for a piece of software that is, at this moment in time, not fit for purpose?

If sufficient testing was done then the testers have been negligent. If it was not done then the individual(s) who authorised the launch have been negligent. Who is responsible and why, until the system is working, have they simply not reverted to using the previous system?

Surely, as a test, data could have been transferred from one system to another.

The use of computerised data input is supposed to save time on both sides i.e. the FSA and the adviser community. The waste of adviser time does not appear to have been factored in and no one is taking responsibility. No explanation is being given and no time scale for when the system will be up to speed.

Is it a software problem or a hardware problem? 'Due to a high level of demand' is given as the reason. If this is indeed the correct explanation. Who is responsible for this poor forecasting of demand?

Evan Owen
IFA Defence Union

How does the introduction of GABRIEL comply with section 7 of the Statutory Code of Practice for Regulators.

7. Information requirements

Hampton Principle: Businesses should not have to give unnecessary information or give the same piece of information twice.
Effective regulatory work, including risk assessment, requires accurate information. However, there are costs to its collection both to the regulator
and to regulated entities. It is important to balance the need for information with the burdens that entails for regulated entities. As such, regulators must
have regard to the following provisions when determining general policies or principles or when setting standards or giving general guidance on data

7.1 When determining which data they may require, regulators should undertake an analysis of the costs and benefits of data requests to regulated entities. Regulators
should give explicit consideration to reducing costs to regulated entities through:

• varying data requests according to risk, as set out in paragraph 4.3;
• limiting collection to specific regulated entities sectors/sub-sectors;
• reducing the frequency of data collection;
• obtaining data from other sources;
• allowing electronic submission; and
• requesting only data which is justified by risk assessment.

7.2 If two or more regulators require the same information from the same regulated entities, they should share data to avoid duplication of collection where this is
practicable, beneficial and cost effective. Regulators should note the content of the Information Commissioner’s letter11when applying the Data Protection Act 199812 in
order to avoid unnecessarily restricting the sharing of data.

7.3 Regulators should involve regulated entities in vetting data requirements and form design for clarity and simplification. They should seek to collect data in a way that is
compatible with the processes of regulated entities and those of other regulators who collect similar data.

Monday, November 3, 2008

Banking crisis - questions for the Treasury Select Committee

I wish to submit the following questions:

Do you now agree with an overwhelming majority of people in the financial services industry that the "tripartite agreement" is fundamentally flawed due to conflicts of interest?

Do you now agree that banking supervision is something one state body should have full responsibility for and that it should be the role of the Bank of England and its former staff who are now at the FSA?

Given the risks that banks pose to the financial system was there ever a time when you felt the need to 'supervise' them very closely rather than regulate certain activities and allow other, more dangerous, unregulated activities to be carried out in London, the largest financial centre on Earth?

Did any of you understand the business model of Northern Rock?

Did anyone not think that lending 125% of the value of a home was irresponsible?

Did you really learn some lessons from Northern Rock and if so why weren't they applied immediately?

Did John Tiner foresee any of this and why isn't he being questioned along with Howard Davies in the same manner as Alan Greenspan was in the US?

Why are the bank auditors not being questioned about the accounts supplied to the FSA?

Why were Bradford and Bingley shareholders misled, or coerced, into subscribing to the rights issue when there was a high probability it would be nationalised?

Why was the RBS rights issue allowed to go ahead and cause unnecessary losses for shareholders?

What hope is there for shareholders to subscribe to rights issues in future given that the facts are not available and neither are dividends?

Why were golden parachutes and pensions handed to FSA staff who left, and are leaving, as this was unfolding while they criticised banks for similar practices?

Does the FSA think it has achieved the Statutory Objective of "maintaining confidence in the financial system"?

Has the FSA been so busy with intangibles such as the Retail Distribution Review and Treating Customers Fairly initiatives that it missed the bigger picture?

Does the FSA now recognise that small advisers are not a threat to the financial system and that it should foster a new, open and transparent, relationship with the distribution model which generates the lowest proportion of complaints yet pays the highest proportion of FSA fees and is burdened by an unwarranted level of regulatory burdens by ratio of size?

Why does Barclays have six months to comply with the Financial Services Authority’s (FSA) new capital ratio target, but not Lloyds TSB ?

How did the FSA arrive at its new capital ratio targets for the banks?

Were the new capital requirements calculated according to transparent principles and can we know what they are?

Why do Ministers believe that a bank is able to sustainably borrow at 12% yet lend at much lower rates?

Is it right that small savers both directly through shareholdings and indirectly through pensions and savings should lose out on dividend income because of the onerous lending terms?

Who has been 'leaking' so much detail to Robert Peston of the BBC?

We are expecting a public inquiry into the involvement of the Bank of England, the FSA and HM Treasury in all of this, will Ministers demand one?

Wednesday, October 22, 2008

Once upon a time a sensible regulator existed

From Mr Stanislas M. Yassukovich.
Sir, The widening discussion about the failure of the regulatory system in the financial services industry still misses the point. How depressing to see Lord Turner missing it as well in calling for more money for the Financial Services Authority. As in so many areas of public service, throwing money at the problem is not the answer.
Regulatory complexity has been one of the causes of resource inadequacy and, ironically, of mission failure as well. It is now accepted by many that the removal of banking supervision from the Bank of England, as lender of last resort, was a near-fatal mistake. The agglomeration of services in single banking groups was never a valid justification for a super regulator. Multinational institutions had been answerable to several regulators for some time. The main loss was the Bank's market "feel" which it maintained because it was itself in the market on a daily basis.
Admittedly, its other main weapon as a supervisor - moral authority - was fading fast. To be in the bad books of the Bank was devastating, when reputation counted for something. Reputation risk now barely exists for institutions and even less for individual practitioners. It is the failure to accommodate this new reality that has undermined the FSA's enforcement process.
We have seen serious regulatory lapses, the subject of extended investigations, culminating in fines. These are shrugged off as a cost of doing business by the entities concerned whose franchises suffer no visible damage. Indeed, the heads of the institutions concerned continue as members of the financial establishment in good standing. Institutions are increasingly immune because shutting them down suddenly and entirely involves systemic risk (the Lehman failure tends to prove this). The answer is a more ruthless and urgent enforcement process against individual practitioners found in breach of principles - and this should include their corporate governors. Regulators in other fields seem to cope with the judicial process challenge this entails.
As to the suggestion that complicated, modern markets need even more expensive experts to regulate them, recent experience is not supportive. There is no financial instrument or market activity that cannot easily be subjected to the fundamental principle that higher returns automatically entail higher risks. The FSA seems to have had difficulty applying this test across the vast range of its regulatory mandate. The days of the all-encompassing financial conglomerates seem to be drawing to a close. It is time to review the concept of a conglomerate regulator.
Stanislas M. Yassukovich,
Bonnieux, France
Former Chairman, The Securities Association, and former Deputy Chairman, London Stock Exchange

Monday, October 20, 2008

Sheets off balance?

Both the Treasury and FSA have voiced their concerns regarding the transparency of the banks' balance sheet with particular regard to 'off-balance-sheet' transactions. I find it confusing, therefore, that they chose to rescue the Bradford & Bingley by providing a £14b loan to the Financial Services Compensation Scheme. Where, on either the government's or the banks' balance sheet, is this to be shown as it presumably is a liability that will have to be repaid by means of increased contributions to the FSCS and a loan no matter how long the intended term for repayment is still a liability.

Sunday, October 19, 2008

FSA needs more staff and more money?

Let's get the facts straight here, the BofE regulated banks quite well for a long time, in 1997 the task was handed over to the FSA along with the 740 BofE regulatory staff. Same people, different office. The main problem with FSA style regulation is that the 'activities' are regulated, not the institutions themselves as was the case with the BofE. The banks then decided to pursue 'activities' which were not regulated and made pots of money out of said 'activities'. The FSA couldn't do anything but watch the festering mass of fancy financial instruments, not that it was looking because these instruments were not regulated and therefore not their problem gov. To make matters worse this style of regulating meant that banks could sell whatever took their fancy as long as the 'compliance department' gave the nod. Regulation is bust, not fit for purpose. Strict supervision is the only way to stop this happening again, the FSA is incapable of doing that, at any price, because it is run by bankers.

Friday, October 17, 2008

Banks need to pay as much as IFAs, says Turner

Does Lord Turner think IFas pay too much? Are IFA fees far too high relative to the risk they pose to the system? Well IFAs would agree wholeheartedly. While his comments are most welcome the sentiment is a couple of decades late and we won't be expecting a reduction in IFAs any time soon, we have been bitterly disappointed many times over the years and still are.

The cost of regulation has increased out of all proportion to the actual detriment afflicted upon 'consumers', clients, and friends, as IFAs know them. The regulator may insist that all the 'reviews' were necessary but that doesn't make what actually happened right does it? Nor does it make up for the losses which turned into profit for many.

Sinking Ship or Ships

Further to the crises still unfolding, may I add a couple of observations.

The hands at the wheel of the sinking ship "S.S. UK Banks" are none other than the FSA- who have been strangely silent these last few weeks. Let me briefly revisit several other icebergs they hit whilst asleep; The Endowment mess, Equitable Life, B&B, Northern Rock and the rest of the flotilla. As we all know, only one eighth of an iceberg is visible and there are still more hidden dangers of which we aren't fully aware waiting to rip the ship apart.

However, would it not be only fair at this time for the FSA to come clean on a major disaster whose blame was laid solely at financial advisers? The endowment debacle was caused by 13 major insurance companies using a generic industry average charge on the illustrations they provided. These charges bore no shred of truth to the real charges on the contracts which outstripped any projection of growth. This practice was allowed to continue for years and despite the Freedom of Information Act, the FSA continue to refuse to release these companies' names. The reason given is that there would be a mass exodus from the companies, people would stop doing business with them and they may go bust. Isn't that what's been happening with the wrongdoing banks?

The FSCS (compensation scheme) itself is an untamed animal. When the interest on the loans to the banks becomes too much for the banking sector to support under the FSCS ( they pay an annual fee to finance the scheme), and when that figure rises above £2billion per annum, then the rest of the financial community who pay fees to the FSA,must pick up the bill! As an IFA who has not fallen foul of the endowment saga, I have already paid compensation to the FSCS on behalf of the advisers who shouldered the blame, and now it seems I personally will pay for the bankers who walk off with a sack of cash, having trashed our banking system.

Meanwhile back at the most expensive office spaces in the UK, Canary Wharf, the FSA party on by adorning the walls with expensive art, hold lavish leaving bashes for their dearly retiring servants (on a final salary scheme continued from previous employers the Personal Investment Authority) and recruit the disgraced bankers to positions of power. If you think this is not true then watch this space.

Dave King

Thursday, October 16, 2008

"Sorry" about failures

I refer to Hector Sants' speech of 15 October 2008.

The lessons of the Northern Rock should have been learned a year ago. I understand, although I am not certain, Ron Sandler's business plan which was accepted by the Treasury and the FSA contained an assumption that house prices would not fall!

Since then the FSA has overseen rights issues for Bradford & Bingley, HBOS and RBS all of which were plainly insufficient and the documentation did not reflect the severity of their positions.

The FSA also made a statement that HBOS had an "exceptionally strong balance sheet". If they knew this was not true it amounts to market manipulation - if they did not, it is negligence. Mr Sants says that they should have made sure the bank directors understood their business model. By this he is admitting that, even after the Northern Rock, the Regulator still did not understand the banks' business model and, therefore, could not regulate.

I hope the FSA understand the business models of the insurance companies!

Finally, who else would be allowed to get away with a second apology with no sanction? What about their jobs and bonuses and the 'golden parachutes' given to departed employees?

New bank business model

What does Hector Sants think of a business model that is forced to borrow money at 12% and then lend it out at a loss?

Wednesday, October 15, 2008

Who guards the guards?

John Tiner was, until recently, the manager of regulation in the UK, he was the most powerful regulator on the planet.

Have we heard any words of wisdom from Mr Tiner regarding the current financial crisis? Can he show us the way out of this mess?

Did he see this coming?

New government website expected soon

Due to the financial crisis the Government is expected shortly to launch a new brand new website -

Interested parties will be able to click onto the website as a handy “one stop shop” to see the most up-to-date explanations to questions such as why:

· The Government, The Bank of England and The Financial Services Authority all failed to stop our banks building up a mountain of toxic debts.

· “The head-rolling” is limited to a tiny group of bank chairmen and chief executives who have decided now is the time to jump ship.

· Despite the multi-billion pound bank bail-out, there is no direct help for ordinary businesses, charities, public organisations, let alone ordinary taxpayers pushed up to and/or beyond the brink by bank and financial market failures.

Unfortunately, due to technical reasons, the website will not contain a ‘contact us’ section, and will instead invite customer feedback on a future occasion which is expected to coincide with the date of the next election.

UK banks want to renegotiate the deal?

The grass is always greener as the saying goes. As a taxpayer I wish to see the banks return to their roots, they lost the plot and now they and their shareholders must pay the price for the folly which got them into the mess as well as the folly of accepting such onerous terms. They went into the deal with both eyes wide open, a contract is a contract, you comply with it and you will get out of it if the taxpayer receives what you promised. Now stop bleating and get us out of this frightening situation if you can.

Brown plan heads for Europe?

If Mr Brown is such a brilliant man where was he when the problems were being created?

The plan may have been overdone, do all other countries also crave control of the banking system?

Is regulating banker's pay the answer?

Is this an excuse to deflect from government and regulator responsibility?

The managers are the bank Board members, the Financial Services Authority, the Bank of England and the UK Government.

If the managers of all this weren't aware of the problems they should not be in charge because they don't have the necessary expertise, if they do have the required expertise they were negligent and should face the consequences.

Tuesday, October 14, 2008

FSA and FOS at odds?

I refer to Section 39 of the Information Tribunal Decision dated 13 October 2008.

It would appear that the FSA took advice from Leading Counsel regarding marketing literature. The advice given, apparently accepted by the FSA, was that if this material could show that it had sufficiently indicated the need for the product to achieve a higher growth rate then that firm could avoid a determination that it had entered into a contractual warranty. This is at total odds with the methodology of the FOS. The FSA's Counsel seems to advise that if it is in the literature then the policyholder should have read the documents and, if they did not understand, should have questioned the fact. The FOS does not accept that an illustration, product literature and a 'cooling-off' notice is sufficient for a complainant to understand there was a risk involved.

Presumably the FOS have also taken Counsel's advice and this conflicts with that given to the FSA. Why has this inconsistency not been addressed?

IFAs not on a level regulatory playing field

IFAs have been suffering under the workload of dealing with complaints relating to projected shortfalls on mortgage endowments and paying compensation for a 'loss' which has not yet materialised. Whether the compensation was paid directly or via the Financial Service Compensation Scheme is irrelevant because in the vast majority of cases the shortfalls were created by the life offices who wish to remain nameless and in the case of Standard Life has refused to make any offers of redress.

The Financial Services Authority claims that all the life offices have paid redress, this is untrue because the FSA's own definition of redress is to place the complainant in the position they would have been had they not purchased the contract and this has not happened. Instead the insurers have used various methods which include 'special bonuses', 'endowment promises' and 'enhanced allocation rates', none of these have assisted IFAs in avoiding overpayment of compensation which is calculated using the surrender value as the datum . This surrender value has been depleted because the premium paid has been much smaller than that required to achieve the target value at maturity so all charges and expenses have had an adverse effect on the smaller investment value.

The FSA also claimed that disclosing the names of the companies would breach their rights under Article 6 and 8 of the Human Rights Act 1998. The Information Tribunal has now dismissed an appeal against an Information Commissioner's decision to disclose the information requested.

FSA liability to bank shareholders

What liability does the FSA have to shareholders in RBS, HBOS and Bradford and Bingley?

Hector Sants admitted that the FSA had inadequate controls in place at the time of the Northern Rock problem. When testifying to the Treasury Select Committee he stated that "lessons had been learned" and changes made.

The FSA has since then stated that they were closely monitoring the financial position of all UK banks. How, therefore, were apparently inadequate rights issues allowed to proceed with offer documents that must have been seen by the FSA?

How could the FSA state they were investigating the short-selling of HBOS and state that the bank was adequately capitalised?

It has, within a matter of weeks, become apparent that these banks needed billions of pounds in order to be adequately capitalised. Investors relied on information provided by the FSA and have, as a result, lost substantial amounts. What responsibility does the FSA have?

Friday, October 10, 2008

Gordon Brown wants to punish reckless bankers

Financial services regulation in the UK is a mess. The manner in which regulation has been set up and run has added to the crisis. It has regulated the wrong things in the wrong way very badly. It has increased risk. The main achievement of the FSMA 2000 is that compliance departments end up running the business. It works like this. A banker has an idea for a new product. He takes it to his boss. ‘Before I even look at this, can you confirm that compliance has seen it and approved it?’. ‘No’. ‘Get them to check it and then come back’. ‘OK’. Later. ‘Compliance says it complies’. ‘Right, is it going to make money?’. ‘Yes’. ‘Get on with it’. In other words the bank or whoever never really thinks about the product. It relies on its compliance department. This is no good as compliance departments are staffed by people who are attracted by rules. They are especially delighted when the rule books are wonderfully, convolutedly prescriptive. They can spend hours playing games with the language and the rules. If the rules can be satisfied by a check box system, even better. Common sense is evident by its absence. The current regulatory regime is not only useless with its divided responsibilities it is useless because it is prescriptive and wildly over-complicated. It needs to be scrapped. Simpler regulation, or rather supervision, by experienced market professionals would be far more effective. The FSMA 2000 must be repealed

Thursday, October 9, 2008

Regulation – the constant fatal flaws

Think back, everyone is aware that we have had more than our fair share of major financial catastrophes in the UK - test your memory, remember when these financial institutions created headlines that filled the news and still do?: Equitable Life, Barings, Standard Life, Independent Insurance, Northern Rock, Bradford & Bingley. Then think about how many people were affected by tinkering with personal pensions, the LAUTRO shortfalls, supposedly guaranteed Occupational Pension Scheme benefits and so on.

Are these clear evidence that regulation contains consistent flaws?

The lowest common denominator in all this was regulation. These all happened after regulation, so is regulation the cause, not the solution?

The world's largest financial centre + the world's largest regulator = The world's largest financial black hole