Yesterday's conclusion of the landmark Financial Services and Markets Tribunal between the Financial Services Authority and Legal & General has generated an industry feeling of victory over the great tyrant, the FSA.
Feedback from IFAs following publication of the tribunal report was the FSA had finally been put in its place after being told by the tribunal its sweeping statement, about L&G’s mortgage endowment mis-selling, was insufficiently substantiated and therefore unjustified. (See yesterday's IFAonline stories for a breakdown of the report's main comments.)
For too long, the FSA has acted like the bully in the playground as there have been occasions when action taken against firms – and the industry in general – has been like using a sledgehammer to crack a nut.
This particular case essentially highlighted the FSA’s failure to ensure it is acting in the interests of all parties concerned, as required under the Financial Services and Markets Act: while it must act in the best interest of consumers, the FSA is also required to work with and act in the interests of the industry. In this case, it did not as the regulator reversed an agreement L&G already had with regulatory officials at the Personal Investment Authority and took a stronger standpoint in issuing the £1.1m fine to show its solidarity with the consumer when an industry mis-selling problem emerged.
The case also highlighted the FSA’s inability to present a case of widespread mis-selling, with the tribunal's report essentially saying not enough research was conducted to argue such a hard line. On the first day of the tribunal, the case had to be adjourned for a few days as the FSA was given a rap over the knuckles because it said it did not have all of the notes needed to present its case. Surely, if a company had gone to the City regulator and presented such an argument, the firm would have incurred a fine from the FSA for being so lax with its paperwork, wouldn’t it?
(Incidentally, did anyone notice the discrepancies, yet again, between the PIA’s reading of the seriousness of a situation - and how to handle it - and the action then taken by the FSA? The phrase ‘moving the goalposts’ springs to mind).
Advisers hope the lasting impact of criticisms against the watchdog will encourage the FSA to think before it takes such heavy-handed action, but you only have to look at the discrepancies between the two press statements yesterday to see just how aggressive the FSA is now likely to be.
Both sides have claimed victory even though in reality both sides have made mistakes and done wrong. L&G recognises it did mis-sell mortgage endowment products, but at least it has been able to admit its mistakes. It has also been dealing with every endowment mis-selling complaint it has received, and compensating consumers where appropriate.
The FSA, on the other hand, has suggested – according to comments delivered in the FT this morning by FSA spokesman Rob McIvor (see this morning's IFAonline papers roundup)– it will take an even more aggressive stance with firms it feels do not comply with the FSA’s perspective.
Given that this is what L&G was arguing, the FSA’s determination to become even tougher suggests they have learned nothing from this experience and could become an even bigger bully.
Whereas financial advisers hope this will allow them to challenge the FSA more frequently, the suspicion and worry is smaller firms and particularly IFAs - who cannot afford the £2m bill of this weighty tribunal – will become easy pickings for the FSA simply because they do not have the resources to challenge enforcement action.Firms should enjoy the sense of victory this tribunal brings while they can because it did at least tell the FSA to do its research. Tomorrow, however, the FSA is likely to revert back to what are seen as strong-arm tactics because its nose has been bloodied and it now has to save face.
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