The social enterprise convened a meeting with parliamentarians, former FCA employees and other stakeholders yesterday (15 September) to discuss amendments that could be made to the FSM bill to bolster consumer protection and promote consumer rights, especially after the regulator was accused of “hanging investors out to dry” in a recent episode of the BBC’s ‘Panorama’.
During the meeting, former FCA employee Jasthi Alom said: “The FCA demands transparency from the industry, however they themselves are incredibly opaque. Take the recent decision of not taking any action against HBOS - no reasons or justification was provided whatsoever their decision.
“In 2020/21 the FCA commissioned a board review by a third party and 20 suggestions were made for improvement, however the FCA did not disclose what these 20 suggestions are – is this transparency?”
Alom, who worked at the FCA for six years added: “The FCA is a failed and toxic organisation and is the shame of UK financial regulation.”
TTF founder Andy Agathangelou said that the FSM bill, which is working its way through parliament, provides “once in a generation opportunity to introduce real and meaningful reforms that will, quite frankly, make it much less likely that the FCA will continue to fail in relation to its consumer protection responsibilities”.
“We think that two things need to happen,” said Agathangelou. “First of all, those that have already been harmed as a consequence of chronic and perhaps even catastrophic regulatory failure also have a fair and reasonable chance of becoming fully compensated for their loss.
“And secondly, we believe reforms need to be made that help to mitigate the risk of that kind of chronic and catastrophic regulatory failure.”
TTF Woodford campaign group leader Mark Bishop outlined the group’s approach to reforms, which focuses on righting “what are widely acknowledged historical wrongs, anomalies and lacunae,” by making the case for necessary things that are not currently drafted or foreseen by the bill, including the “need to upweight consumer rights through financial services”.
TTF’s three proposed amendments are centred around three “universal truths”, it said, namely: ‘If you screw up, you should pay up; what’s sauce for the goose is sauce for the gander; sunlight is the best disinfectant’.
Amendment 1: If you screw up, you should pay up
Bishop stated that the FCA had enjoyed immunity from civil liability since the Financial Services and Markets Act 2000 (FSMA) came into effect, which was not the intention of its drafting. He pointed to the ways in which the complaints scheme was flawed, as it allowed the regulator to “set the rules” by appointing the complaints commissioner and setting her budget.
As a way around that, Bishop proposed mandating that the complaints scheme can cover regulatory failure and losses.
“It’s what makes the major complaints commissioner’s findings binding on regulators and as a backstop because the complaints commissioner is imperfect, and can only investigate the material that she’s given. There should be an end to the civil immunity of the FCA.”
He also proposed disapplying the Limitation Act for the first six years so that people with legacy claims can come forward and secure redress where a court or the complaints commissioner deems it appropriate.
“This is really a backstop for where the FCA is unable or unwilling to secure redress from firms,” he said.
He added: “Of course, it will become much more assertive in its relationship with firms if it knows that it’s on the hook for the losses it’s unable to secure by means of enforcement. So immediately, the scale of the losses that we’re talking about will shrink.”
Amendment 2: What’s sauce for the goose is sauce for the gander
This proposed amendment seeks a statutory of care owed by authorised persons to consumers and advocates holding the industry liable for its wrongs, just as it does the FCA.
Bishop called into question the FCA’s recent Consumer Duty rules and said: “The consumer duty is not in any legal sense, a duty of care”.
“There are many exemptions,” he said. “Things you’d be covered for under duty of care are not considered covered for Consumer Duty. For example, if an authorised firm hands over a client or subcontracts to an unauthorised firm, that’s tough if something goes wrong. There is no contractual link, there is no way in which the person can be helped if they don’t have a contractual link with the firm in question.”
He also highlighted that Consumer Duty failed to end exit fees “despite these things, not apparently being in keeping with the consumer duty,” and provide for consumers’ right of private action which would allow consumers to litigate to recover their losses.
“But perhaps the most important flaw of the Consumer Duty is that it is of no value at all, unless the FCA chooses to enforce against it. The FCA is record on enforcement is appalling. Many wrongs against which it does not enforce, in particular, it very seldom attains redress for consumers whether using a restitution order, or its redressal powers.”
Amendment 3: Sunlight is the best disinfectant
Bishop pointed out the FCA is currently answerable to three industry panels and one consumer panel and that it’s required to have regard to what they say. “It’s supposed to either comply with what they say or publish its reasons for not doing so. It doesn’t really do that,” he added.
The upcoming FSM bill could worsen that imbalance of panels, he said, by creating two more industry panels, changing the ratio to five or even six to one.
“It will actually create what’s called a cost benefit analysis panel, which in theory, is not for the industry or for consumers,” he said.
“We fear it could be kind of packed with management consultants who work for the financial services industry who want to make the case that it’s not worth having big regulation that creates a financial burden on the industry, because there might not be a commensurate benefit to consumers.”
This amendment seeks to introduce a statutory Financial Regulators Supervision Council (FRSC) which would have input on hiring and firing.
Bishop stated that the FRSC would have a role in the appointment and removal of a chair and chief executive of the FCA, the sole responsibility for appointing two of the FCA’s non-executive directors, it would be also responsible for appointing the directors of the Financial Ombudsman Service (FOS), the members in the chair of the consumer panel, and the complaints commissioner.
It would also be responsible for publishing an annual review into the FCA and its regulatory regime, he added.
“Currently, nobody is doing this. It can’t do any harm for somebody to do it. It could well help.”
“Periodically, it could publish reviews about the FCA’s treatment of whistle-blowers and their evidence. We have grave concerns about the way both whistle-blowers and evidence have been treated by the FCA over many years,” said Bishop.
He also proposed that the FRSC would oversee the complaint scheme rules, budgets and payments to make sure that the payments were made to the people who complained when they should have been paid out.
The FSM bill was first introduced in the Queen’s Speech in May, and was said to build on the Financial Services Act 2021.
At the time, a HM Treasury release said that the bill would “make the most of the opportunities of Brexit” and revoke European Union (EU) law on financial services, replacing it with an “approach to regulation that was designed for the UK”. It will also update the objectives of the regulators to “ensure a greater focus on growth and international competitiveness,” as well as reform rules around UK capital markets “to promote investment,” according to the release.
The bill will allow ministers to “call in” decisions by the Bank of England (BoE) they do not like, essentially granting them power to intervene over financial services regulation.
Former chancellor Rishi Sunak set out his approach in a ‘Brexit manifesto‘, talking of a ‘Big Bang 2.0‘. He said: “We will finish the job of ending the EU system where ultimate power lies with faceless regulators and vest that power in our sovereign parliament.”
BoE governor Andrew Bailey has expressed his opposition to the ‘call-in’ power, while FCA chief executive Nikhil Rathi said in a letter sent to chancellor Nadhim Zahawi on 19 July, that although the regulator supports the Treasury’s plan to move away from EU rules, outcomes from the framework must not “undermine its operational independence”.
The bill is currently at the committee stage, where a detailed examination of the bill takes place. It usually starts within a couple of weeks of a bill’s second reading, although this is not guaranteed.
An FCA spokesperson said: “We welcome the additional accountability to Parliament provided for in the current draft of the FSM bill.
”The FCA has a justified reputation for taking action, including the first criminal prosecution of a bank for anti-money laundering failures, over £1bn secured for small businesses with business interruption cover and a new Consumer Duty that will raise standards across the industry.
“Where there have been things we could have done better, we commissioned independent reviews to ensure we learned the lessons. The recommendations of those reports have been included in a significant programme of change underway at the FCA which is designed to ensure we have the resources, technology and approach needed to be an innovative, assertive and adaptive regulator.”