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Advisers lobby National Audit Office to probe FSCS budget

by Michelle Abrego on Feb 07, 2013 at 11:45

Advisers lobby National Audit Office to probe FSCS budget

The Association of Professional Financial Advisers (Apfa) has called on the National Audit Office (NAO) to examine the Financial Services Compensation Scheme (FSCS) over its ‘blank cheque’ budget.

Under the Financial Services Act, the NAO will have the power to scrutinise the Financial Conduct Authority (FCA) and its subsidiaries, the FSCS, Financial Ombudsman Service and Money Advice Service.

Apfa policy director Chris Hannant has raised concerns with the NAO over the FSCS almost doubling its budget for compensation recovery, which includes its Keydata legal battle, for 2012/13 from £3.9 million to £7.7 million.

‘The FSCS looks like a budget out of control…the lack of clarity of where they’re going with this [legal battle] makes it look like a bill that could grow and grow,’ he said.

A spokesman from the NAO said the body was in the early stages of planning what work it would do in relation to the FCA.

10 comments so far. Why not have your say?

Ken the Beckett

Feb 07, 2013 at 12:11

Why not use the money from the fines imposed on the banking sector to fund the FSCS rather than crippling good honest financial advisers

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Ned K

Feb 07, 2013 at 12:21

Part of the FSCS bill will be the CF Arch debacle. Which looks increasingly like regulatory failure and the bill for it will be paid by IFA's:

Chris Gilchrist wrote: Lack of supervision is real reason for Arch cru failure

28 January 2013 8:00 am


When Oeics were introduced in the UK, the Treasury said regulation would ensure that Oeics were as safe as unit trusts. Experienced executives and commentators knew that the structure of Oeics, with a weaker supervisory role for the ACD than for the unit trust trustee, would only provide equivalent protection for investors if there was stronger regulatory oversight of Oeics. Naturally the FSA promised to provide this.

In practice, the FSA has failed to exercise the oversight it needed to ensure the safety of Oeics in the simple terms that investors should not suffer losses from fraud and should be 100 per cent compensated for any such losses. Any level of protection less than this is sure to cause investor losses that erode confidence in the collective fund industry.

.The unit trust trustee unequivocally remains on the hook with unlimited liability for any and all such losses and this fact has always been recognised by trustees and managers.

In the case of the Oeic’s ACD, there is not the same degree of clarity. As we have seen in the Arch cru case, there is a blurring of responsibility. That has enabled the FSA to push through a partial compensation scheme which lands a large part of the cost of the failure of a fund on financial advisers.

In the Arch cru case, I have always believed it was failures by the FSA itself in its capacity as regulator that lie at the root of the failure. The FSA should never have granted authorisation to the fund because of the illiquid assets which formed part of the cell companies of the Oeic.

This is exactly the higher degree of supervision that the Treasury acknowledged was necessary to make Oeics as safe as unit trusts. And it hasn’t happened.

The FSA was warned. It has yet to fess up to the warnings it received from several experienced unit trust bosses who raised serious concerns about the Arch cru range before it sank.

The question of whether some advisers gave bad advice on Arch cru is entirely secondary. If the FSA had done its job, they would not have been able to advise clients about it.

Another regulatory failure concerns the ACD. It seems remarkable to me that the FSA permitted it to operate on a capital base that would not provide investors with adequate protection. Standard Life’s PI insurers have just paid out £100m in respect of inadequate disclosure regarding the risk in a ‘cash’ fund. Yet the FSA allows ACDs to operate without such insurance?

The FSA needs, as a matter of urgency, to address its regulatory failures and bomb-proof the investor protection within all authorised funds.

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Julian Stevens

Feb 07, 2013 at 12:29

Surely this is something that should fall within the remit not of the NAO but of an Independent Regulatory Oversight Committee charged with policing not just budgetary matters but a whole host of other aspects of regulatory policy and practice. In addition to the FSCS, the FSA is a totally out of control and unaccountable monster whilst we don't yet know whether the FCA will be any better ~ as things presently stand, there appears to be nothing to prevent it from being just as bad as its predecessor.

APFA needs to have bigger ambitions than involving the NAO in just one aspect of the activities of just one regulatory body.

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Charles Rickards

Feb 07, 2013 at 13:21

Please can we have someone audit the FSA and related organisations to see how they can justify increased expenditure, when most other parts of the 'public sector' are experiencing cut backs! The FSA want transparency for the industry and have changed rules to achieve this, without giving full consideration to the impacts created. They should be leading by example.

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Julian Stevens

Feb 07, 2013 at 13:34

Of course the FSA should lead by example but, as we all know, it doesn't. ~ its mantra is Do as we say, not as we do (and if you don't.....). Which is why we need an IROC to enforce adherence to the Statutory Code of Practice for Regulators (on both of which the TSC, APFA and just about everyone else seem to be conspicuously silent).

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Dan Rear

Feb 07, 2013 at 13:38

Charles, about as much chance of that as the EU getting its Budget cleared by its own 'independent' auditors.

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Mark Smithers

Feb 07, 2013 at 21:03

Good job

The lack of controls of Herbert smith are clear.

it is a shame that the average IFA cannot afford to employ such a firm, but sadly they cannot afford it.

But of course the format is the IFA pays into a fund without choice, the fund then employs expensive solicitors and then the solicitors sue the funders.

And lastly senior members of the FSCS/FSA get jobs at the solicitors. Seems like conflicts somewhere

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Mark Smithers

Feb 07, 2013 at 21:26

So we do not forget. Was PWC not involved with keydata. That's right I nearly forget the administrator

enforcer Margaret Cole to join PwC

Margaret Cole, the Financial Service Authority's most effective enforcer who resigned earlier this year, is to join accountants PwC as its top legal adviser in Britain.

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Mark Smithers

Feb 07, 2013 at 21:29

Jun 26, 2012 – Martyn Hopper, a former FSA enforcer now with law firm Herbert Smith

The Financial Services Authority is losing one of its most senior lawyers, David Mayhew, who is to join law firm Herbert Smith. Mr Mayhew was leading advocate at the City regulator and its former acting director of enforcement. At Herbert Smith he will be reunited with other former FSA staff, including Martyn Hopper who represented former Shell chairman Sir Philip Watts in a case involving the FSA. Margaret Cole, FSA head of enforcement, said: "The FSA has greatly valued David's commitment and enthusiasm over the past four years and his interim management of the enforcement division."

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Mark Smithers

Feb 07, 2013 at 21:30

I am sure there are many more

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