The Guardian (UK): Watchdog in the dock: “Shortly after former Shell chairman Sir Philip Watts took his case to the tribunal last October, the FSA chairman admitted appeals were slowing down the regulatory process.”: “Mr Hopper, who is representing the ex-Shell chairman in his case against the regulator, sees it another way. ”Any law enforcement agency that wins all its cases is not doing its job properly." (ShellNews.net) 17 Jan 05
The FSA has a lot to lose if L&G wins its appeal over £1m fine for endowment mis-selling
Monday January 17, 2005
Top City regulators along with one of the insurance industry's most senior figures will discover tomorrow just how much their reputations have been tarnished by a long-running regulatory dispute over endowment mis-selling.
The financial services and markets tribunal is to publish its decision on whether the Financial Services Authority was correct to levy a £1.1m fine for the way insurer Legal & General sold mortgage endowments in the late-90s. David Prosser, the chief executive of L&G, has cleared his diary to field calls from investors, analysts and journalists.
Mr Prosser, who at 60 is 14 months away from his planned retirement, has put his neck on the line - receiving admiration in private from some rivals who wish they had the courage to take on the FSA.
But if Mr Prosser has spent the weekend biting his nails, the FSA's most senior officials - chairman Callum McCarthy and chief executive John Tiner in particular - will also be suffering a bout of nerves.
The pair are still smarting from the mauling the FSA received for its handling of compensation for investors in split capital trusts. The Christmas Eve deal resulted in a compensation pot of £194m from some of the companies which sold the trusts, some £150m less than originally intended. Four firms are still being investigated.
None of the firms involved in the settlement have been found to have committed any wrongdoing despite Mr McCarthy's assertion to the Treasury select committee of MPs that the regulator had evidence of collusion. He and his chief executive may yet be called back by the committee to explain themselves.
The L&G judgment comes at a time when the tribunal is preparing to hear an unprecedented number of appeals against actions sanctioned by the FSA's regulatory decisions committee.
There were 12 references to the tribunal in its first year of 2002, 23 in 2003 and 36 in 2004. In those three years, 77, 115 and 243 cases respectively were sent to the regulatory decisions committee, a body which provides a kind of internal check on actions proposed by the FSA's enforcement and authorisation divisions.
Just a couple of weeks into 2005, two cases have been lodged with the tribunal. The FSA, which last Friday took control of general insurance - ranging from car dealers to big insurers such as Marsh - is also braced for a flurry of fresh appeals from individuals it refused to register.
Aside from the appeal by Paul "the Plumber" Davidson over a £750,000 fine for market abuse, the L&G case is the highest profile yet as it is the first to be brought by a major company.
Mr McCarthy has expressed his own concerns about the rise in references to the tribunal. Shortly after former Shell chairman Sir Philip Watts took his case to the tribunal last October, the FSA chairman admitted appeals were slowing down the regulatory process.
Not everyone agrees. "It's good for the regulatory system. It provides assurance that the system is subject to that check," said Martyn Hopper, a partner in law firm Herbert Smith and a former senior member of the FSA's enforcement team.
The tribunal's decision over L&G will be watched more than any other for signs of criticism of the regulator's procedures. The use of samples of customers to help determine mis-selling could be a significant issue.
L&G repeatedly criticised the regulator's investigation and enforcement procedures during the tribunal although the FSA insists it acted "fairly and properly throughout the process".
"The FSA's case is not - however much L&G would like it to be - about the FSA's procedures," a spokesman for the regulator said. As far as the FSA is concerned it is about "fundamental deficiencies" in the sales and compliance procedures used by L&G to sell its Flexible Mortgage Plans between 1997 and 1999.
Pursuing endowment mis-selling has been a mission for the FSA since it received its powers in 2000. Aside from L&G, a handful of other firms have accepted fines for similar offences while others have paid penalties for mishandling compensation claims. In total £1bn has been earmarked across the industry for potential redress for customers who were sold products that were too risky for them and which are now failing to provide their projected income. The bill may rise further. The Financial Ombudsman admitted at the weekend that it was flooded by complaints about these prod ucts, which were particularly popular in the late-80s and early-90s.
While the stakes are high for both L&G and the FSA tomorrow, many senior FSA figures have either recently left or are about to: Christopher Fitzgerald, the chairman of the regulatory decisions committee, resigned in summer after a late night meeting with a member of the panel hearing the Plumber's case; Andrew Procter, head of enforcement, is leaving shortly to join Deutsche Bank.
Jonathan Herbst, partner at Norton Rose, suggested the FSA could use this to its advantage if the tribunal supports L&G. "Very soon the FSA will get a new director of enforcement and has a new director of the regulatory decisions committee and might see it as a way to start afresh."
Mr Hopper, who is representing the ex-Shell chairman in his case against the regulator, sees it another way. "Any law enforcement agency that wins all its cases is not doing its job properly."