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THE LONDON TIMES: L&G awaits decision on appeal over £1.1m fine: “The FSA is already facing another high-profile tribunal challenge from Sir Philip Watts, the former Shell chairman.” ( 4 Jan 05


By Patrick Hosking, Investment Editor

January 04, 2005  


A JUDGMENT in the landmark legal battle between the Financial Services Authority and Legal & General is expected as early as next week.


The Financial Services and Markets Tribunal said the judgment would probably be delivered soon after January 10. Sickness and holidays had prevented an earlier decision.


L&G is appealing in the tribunal against a £1.1 million fine for endowment mis-selling in the first high-profile challenge to the City regulator by a blue-chip financial services company. Five weeks of evidence, in which senior figures from L&G and the FSA delivered sworn testimony in open court, ended in late October.


The three-member panel, headed by Judge David Mackie, has since been ploughing through a mountain of written evidence before coming to its decision.


A victory for L&G, which has relentlessly attacked the FSA’s investigation and enforcement procedures, would seriously damage the authority’s credibility. It would also encourage other companies and individuals to challenge decisions. The FSA is already facing another high-profile tribunal challenge from Sir Philip Watts, the former Shell chairman.


A victory for the FSA would help to restore its shaky reputation for investigating and punishing abuses and boost the confidence of its enforcement division. It would also cement the position of John Tiner, the FSA chief executive, who has come under fire for not securing a bigger settlement from City firms in the split capital trusts scandal.


But it would also put a question mark over the judgment of David Prosser, L&G’s chief executive, who raised the stakes by taking the case to the tribunal. Although the move was unanimously sanctioned by the L&G board, the appeal is seen as a personal crusade by Mr Prosser.


Soon after his appointment in 1991, L&G was forced to pay £600 million in damages and fines for pensions mis-selling, and he vowed nothing similar would happen again on his watch.


There is even speculation that he might resign if the tribunal finds against L&G. Aged 60, he is already one of the longest-serving bosses of a FTSE 100 company.


At the heart of the case is the way L&G sold mortgage endowments to low-risk customers between 1997 and 1999. In court, lawyers for the FSA argued that there had been “fundamental deficiencies” in the sales and compliance processes at L&G.


Customers were said to have been given unsuitable recommendations by sales people. An internal memo at L&G admitted that the policies had “a very real risk of shortfall at maturity”. The FSA even described how L&G had failed its own mock regulatory inspections.


But L&G hit back, accusing the FSA of “a catalogue of failings”, including poor information gathering, misinterpreting documents and failing to interview a single L&G sales person before coming to its decision.


One possible outcome is that the tribunal could uphold the original FSA decision, while still criticising the regulator’s methods. That would allow both sides to claim a sort of victory.


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