Does the UK need an 'S.E.C.' style of regulation?
by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting
In the United States, a law to register financial investments came into force after the Wall Street Crash, with the Securities Act of 1933. The same never happened in the UK. Is it time for a change?
When Andy Agathangelou gave evidence to MPs’ inquiry on pension scams, the Work and Pensions Select Committee asked witnesses to write to them with any further thoughts on regulation. One idea that was discussed in evidence was to use a system of blacklists or whitelists to identify unregulated products. We are writing to the Committee on this, following the TTF’s ‘Joint Task Force’ proposal which is now published on the Committee’s website.
How does an S.E.C. type model of financial accountability work for the United States? Data on the US Violation Tracker project shows that recidivism, where financial misconduct repeats again and again, is a multi-$billion phenomenon there. But from the perspective of Mark Taber and other financial experts grappling with our system of regulation, the US system of knowledge-gathering, at least when it comes to a formal register of financial investment promotions, is many steps ahead of the UK and can disincentivise crooks.
"No record" of investments being promoted to the British public
Mark Taber, an accountant who has investigated and campaigns against scams being promoted to the public, spoke about this at a Symposium we ran on financial promotions last Wednesday. According to his research, City watchdog the Financial Conduct Authority “not only don’t know who is approving financial promotions, they don’t know which financial promotions are being approved, and they don’t know whether a withdrawal has happened”.
Within the UK’s system, this can mean that “a rogue is paid £50,000 to approve; the day after, he withdraws his approval. … There is no record, anywhere, of what investments have been approved, what investments are going to be promoted to the public, or anything like that”, Taber explained.
Investors might then “conflate the fact that a financial promotion has been approved by an FCA-authorised firm with [an idea] that the product itself is FCA-regulated.”
Scandal: London Capital & Finance
The demise of London Capital and Finance in January 2019 left around 11,600 investors with losses of £237m, from a regulated entity that was promoting unregulated – and high risk – ‘mini-bonds’.
Radio 4’s Moneybox recently heard from just one LCF victim who said “I invested in what I thought was a savings account which was an ISA, which was marketed alongside high street brands.” She lost £16,000 that she had thought she was investing for her son’s future. The Financial Conduct Authority later issued a supervisory notice against London Capital and Finance stating that these were “not ISA qualifying investments”, and the Serious Fraud Office is still investigating the scandal.
Complaints scheme controversy
The Financial Conduct Authority has received a storm of complaints about LCF – the latest in a string of financial scandals. LCF bondholders and ourselves have repeatedly urged the FCA not to introduce changes to its Complaints Scheme before a probe into alleged regulatory failures is complete.
The independent reviews of scandals that span the last decade or so, may have delayed court cases related to consumer complaints by several years. For example, a claim related to interest rate hedging products promoted to a nursing home in 2007, is due to be heard in the High Court this week, over video.
The case for ‘S.E.C.’ type knowledge-gathering
In Taber’s view, a contributing factor to the London Capital and Finance furore is that the firm was “able to issue their own financial promotions without any independent scrutiny whatsoever.”
This is a key facet of what Transparency Task Force is hearing, that financial promotions regime needs to be transparent in the UK – registered and audited. Broadly, this might align to an ‘S.E.C.’ type model.
TTF advisor Mark Bishop, of the Connaught Action Group, represents another group of investors who have lost £millions to financial scandal in the UK. He mapped out the problems he sees in more detail:
How misleading financial promotions reach consumers
Why did the 2010s see a boom in fraud targeting pensions?
New South Law‘s founder Peter O’Donnell lost his own home to an investment fraud in the 00’s, and says he still wakes up in the middle of the night searing in anger at what he sees to be deep flaws in the UK’s regulatory system.
He spoke alongside Mark Taber at last week’s Symposium and also kindly granted me an interview. As a volunteer for TTF I have yet to do Peter’s story justice. However a point he makes that resounds immediately with us at Transparency Task Force is that pension scams are really, simply another form of investment scam, and that this core feature of the problem must not be overlooked.
In O’Donnell’s expert view “in 2008, the global banking collapse occurred, and instead of fraudsters getting people to get money out of equity in their homes they then moved to pensions. You couldn’t get an interest only mortgage on your home to release capital to invest with.
“That’s why I’m saying this is not pension fraud or mortgage fraud, it’s investment fraud.” From a fraudster’s perspective, if you are trying to hoodwink an asset-holder into a high risk or low-scrutiny investment: “the only way you are going to get money for people to invest, is to get money that they don’t understand that they hold, to invest with.”
That appetite for naivety is why fraudsters will tend to circle around pension liberation schemes. O’Donnell is keen that regulators, and MPs’ inquiry into pension scams, do not adopt too narrow a definition of a pension scam. It is in its essence simply another form of investment fraud – MPs and regulators risk blinkering themselves if they pigeonhole the culprits around pensions.
Press Timeline of relevant articles:
17 Oct 2020 MPs pursue claims bank signatures were faked on court papers by Rupert Jones for the Guardian
16 Oct 2020 We need universal digital ad transparency now by Laura Edelson, Erika Franklin Fowler and Jason Chuang for TechCrunch
15 Oct 2020 Rising COVID-19 Rates Send NatWest Misselling Trial To Video by Bonnie Eslinger for Law 360
12 Oct 2020 ‘It is time to reboot the competition regime for the modern, digital age’ by David Wighton, The Times
12 Oct 2020 Gina Miller blasts FCA complaints scheme changes ‘unfair, immoral and illegal’ by Cristian Angeloni for Portfolio Adviser
12 Oct 2020 MPs call for input on Pension Schemes Bill by James Phillips for Professional Pensions
10 Oct 2020 Give pension trustees power to fight scammers, say MPs by Kenza Bryan for the Times
08 Oct 2020 Freedom to transfer pensions should be stripped where scams are suspected, industry experts urge by Jessica Beard for the Telegraph
08 Oct 2020 Planned pensions shake-up passes first Commons hurdle by Law 360
08 Oct 2020 WPC chairman says transfer rules ‘must be changed’ by Amy Austin for FT Adviser
07 Oct 2020 Tech giants share blame for pension scams, MPs told by Law 360
06 Oct 2020 FCA opens 85 cases over pension scam concerns by Amy Austin for FT Adviser
11 Sep 2020 – The Hut Group facing fresh questions over governance after it reveals one of country’s best-known private equity barons to oversee pay policy by Lucy White for the Daily Mail
10 Sep 2020 London Capital and Finance investors relieved after court ruling opens route to compensation claims by Ben Chapman for the Independent
08 Sep 2020 – Change in law needed to stop scams, says Timms, by Amy Austin for FT Adviser
24 Aug 2020 – Financial Conduct Authority rushes to minimise compensation for its failings by James Hurley for The Times
04 Aug 2020 – Have your say: Will the WPC’s inquiry into the impact of pension freedoms be too overshadowed by Covid-19 impacts? by Professional Pensions
03 Aug 2020 – ‘“I’m 39, have lost my job and am in debt – can I unlock my £18k pension?” … DON’T do it!’‘ by Steve Webb for This is Money
01 Aug 2020 – ‘I lost £2.3m after I was conned into transferring my pension’ by Jessica Beard for the Telegraph
31 Jul 2020 ‘Common sense’ prevails as pension freedom withdrawals fall 17% — But drop is expected to be ‘a short-term blip’ by Robbie Lawther for International Adviser
31 Jul 2020 – HMRC figures show plunging pension freedom withdrawals by Hope William-Smith for Professional Adviser
28 Jul 2020 – MPs launch inquiry into pension scams by Tom Kelly for Daily Mail ; UK Pension Scams Under Scrutiny After 2015 Relaxation in Rules by Reuters & MPs launch wide-ranging pension scams probe by Justin Cash for MoneyMarketing
24 Jul 2020 – US business groups seek steps to stamp out online fraud by Leonie Barrie for Just Style
17 Jul 2020 – Year ‘dominated’ by FCA shortcomings as 205 complaints made, by Rachel Mortimer for FT Adviser
29 Jun 2020 – MPs Pushed to Launch Pension Scam Inquiry by Amy Austin for FT Adviser & Lawmakers Urged To Open Inquiry Into Pension Scams by Martin Croucher for Law 360
11 May 2020 – FCA urged to build public trust in independent reviews by Rachel Mortimer for FT Adviser
15 Apr 2020 – Met police lose two thirds of finance officers as fraud soars by Ben Ellery for the Times
20 Mar 2020 – Connaught review delayed as Covid-19 concerns loom by Rachel Mortimer in FT Adviser
07 Jan 2020 – It’s time to keep your pensions promise, Boris! The PM pledged to help these victims of a huge scam FOUR years ago – and they’re still waiting by Tom Kelly for the Daily Mail.
29 Dec 2019 – ‘Lambs to the slaughter – tens of thousands of savers have lost up to £10billion in rogue pensions schemes sanctioned by the government… and now the taxman is threatening VICTIMS with fines’, by Tom Kelly for the Daily Mail
15 Aug 2019 – Victims hit by Connaught’s collapse blast City watchdog for ‘whitewashing’ independent review by Lucy White for Daily Mail
18 Jun 2019 – “I came home to find my house had been stolen!” by Angela Ellis-Jones for the Daily Mail
20 Jun 2019 – FCA orders review of its handling of Connaught collapse by Rachel Mortimer for FT Adviser