Berkeley Berry Birch's decision to withdraw its appeal to the Financial Services and Markets Tribunal has raised questions about the fairness of the UK financial services regulatory regime's appeals process in relation to IFAs and whether, in reality, firms could ever truly make an appeal given the costs involved.
Last week it was announced BBB had six weeks to find £11m to fill the capital adequacy deficits of two of its subsidiaries before the Financial Services Authority (FSA) closes them down.
BBB has until 27 February to find the money and save the two firms, BIA and Weston. The FSA will not cancel the permissions either firm has to conduct regulated business if BIA and Weston are able provide the regulator with written opinions from their auditors they are compliant with the prudential Rules on capital adequacy.
BBB had intended to challenge decisions made by the FSA, thorugh Financial Services and Markets Tribunal, concerning FSA decision notices issued against Berry Birch & Noble Financial Planning (Weston) Limited in July 2005.
Instead, BBB has withdrawn its appeal and in the recent announcement John Joyce, chairman of BBB, said: "This agreement will enable BBB to focus fully on its refinancing plans. The BBB Board has met and reviewed the plans, which are proceeding within the expected timescales."
Yet this is not the first time advisers have questioned whether they can afford to appeal regulatory decisions made by the FSA, and as a result, new questions are raised as to whether intermediaries realistically have the same right of appeal.
One adviser who has faced the Financial Services Authority’s (FSA) enforcement process declares there is “no right to appeal”, particularly for small to medium-sized firms who cannot afford the costs of legal representation at the Tribunal.
The IFA, who has asked to remain anonymous, says his appeal would have cost £100,000 on top of the legal and compliance fees he had already paid and, as a result, he was advised to accept the FSA’s £25,000 fine.
But he feels it is essential for advisers to be able to appeal, particularly as he questions whether IFAs are treated fairly by the Regulatory Decisions Committee (RDC) – the body that makes decisions in contested cases – and argues it is not independent from the FSA. Instead, rather than reviewing the evidence, the RDC merely judges whether a fine imposed is fair.
He states: “There is nothing the IFA can do. The FSA has a free hand to make inaccurate statements and has no moral obligation to correct them.”
While there is no obligation to have legal representation, Adam Samuel, a compliance consultant, says this is only of note in simple cases where an IFA can go to the Tribunal on his own and have “an appeal by re-hearing”.
But if the case is more sophisticated – looking at subjects such as financial promotions, mis-selling or complaints handling for example – legal representation is essential and the result is the FSA’s decision is “virtually unchallengeable” and the Tribunal is “worthless”, suggests Samuel.
He adds: “The average IFA is wasting his time and might as well take the penalty.”
Samuel believes it would be interesting to find out the extent to which such costs influenced BBB’s decision to withdraw its appeal, saying: “It must have been a real concern.”
Margaret Cole, director of enforcement at the FSA, has stated in a recent speech to the Securities and Investments Institute: “The RDC is accountable to the Board and separate from the Executive, but it is worth stressing once again, as the regulator’s Enforcement Process Review recognised, that the RDC is not, has never been intended to be, and will not now be, a wholly independent body separate from the FSA.
“It is the organ by which the FSA makes disciplinary decisions and its decisions are those of the FSA,” she adds.
Cole says: “We do not want to be diverted from our task of obtaining efficient, speedy and robust outcomes in the interests of protecting the integrity of the markets and ensuring a fair deal for consumers, by unproductive debates about processes.”
Samuel says there is an argument for not making the RDC wholly independent, pointing out the FSA’s role is to be a regulator and should not be “second guessed”.
Furthermore, he says the FSA “doesn’t fine people for kicks” because each enforcement case takes a lot of time and effort and “burns up resources”. Instead, Samuel says the FSA’s usual method is to write to IFAs telling them a certain practice is unacceptable and asking them to fix it.
In addition, Samuel thinks small IFA firms should not worry too much because they “are distant from the FSA’s radar”. By contrast to some IFAs’ fears, the FSA takes the view small firms constitute a low percentage of complaints and, indeed, it “likes the sector because it doesn’t cause big problems for the industry”.
Kate Burns, press officer at the FSA, says while the FSA does not expect firms to enjoy the enforcement process it wants them to feel it is fair.
She points out although the RDC is not independent from the FSA, it is independent from the enforcement division because the Financial Services and Markets Act requires a separation of powers between investigation and decision-making.
In addition, Burns says only one employee of the RDC - the chairman - is a member of the FSA, while the rest are representatives from across the industry.
But when it comes to defending the costs of the Tribunal, which can prevent IFAs from appealing decisions, Burns states: "The Tribunal is set out in legislation. It is not our creation but was done by the government."
Carey Shakespeare, group marketing director at Berkeley Berry Birch, says: “The FSA has an important role to play in protecting consumers. We should embrace any actions that achieve this objective. In our dealings with the regulator we have found them to be firm but fair and highly cooperative to the needs of our business.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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