TTF Blog: 21 December 2020

UK regulator feels the heat of failing to protect consumers from scams

Revolving doors - the Financial Conduct Authority

by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting

Reports on regulatory failure in the Connaught and London Capital & Finance scandals – which collectively lost consumers hundreds of £millions in hard-earned savings – were published last week with damning effect on the UK’s leading City watchdog the Financial Conduct Authority.

Transparency Task Force is brainstorming for a White Paper on how the FCA could be fixed, as former watchdog chiefs face press ridicule for both ignoring tip-offs on scandals and trying to use ‘Maxwellisation’ – legal attempts to challenge what is said about them – to mute personal criticism after the fact.

Much of that censure has fallen on Bank of England governor Andrew Bailey, who is likely to be defending his career history to MPs in the new year. As the Guardian‘s Nils Pratley commented, Bailey’s job is probably secure but there are no guarantees. William May, a campaigner against banking fraud, commented at a Symposium we ran last week that ‘I’m extremely pessimistic about what we’re looking at … in recent weeks, Andrew Bailey has come out amazingly saying that he wants even looser regulation. That I regard as outrageous.’ Journalists, meanwhile, have noted Bailey insufficiently resourced consumer protection in his former role leading the FCA. Investigative teams were apparently understaffed, despite the FCA being funded to the tune of approximately half a £billion each year – it had income last year of £632 million from its industry-funded levy, Patrick Hosking reported today. Where’s all that going, if not on enforcement?

The campaigns of TTF member Mark Taber  would appear to suggest that the FCA is still not keeping up with one volunteer accountant identifying scam promotions online. According to Taber they’re still failing to clamp down on con-websites he flags, as he told the Times, despite all the FCA’s resources. With the best will in the world, there is much that needs to be improved. A lot of the problems are to do with the ‘regulatory perimeter’, which means regulated entitites can promote unregulated products.

Policing the ‘regulatory perimeter’

Helen is one of the 11,000 of so London Capital and Finance investors who lost savings to the multi-£million scheme. She presented to a Transparency Task Force symposium last week (watch) on how she was sold what were termed ‘fixed rate bonds and ISAs’ but were actually mini-bonds.

She suggested that regulation needs to be ‘appropriate to the business model’ within financial services and that “quasi-bank activity” ‘absolutely needs to be addressed’.

Who decides the public interest?

Baron Prem Sikka, a new member of the House of Lords who has long campaigned against financial abuses, observed at last week’s Symposium (video) that Andrew Bailey and others at the FCA tend to cite ‘the public interest’as what they exist for. He asks in response ’where exactly are the public, and how do you know what the public interest is, so that you can serve it?’”

He said: “There is very poor public accountability” and ‘if regulators have dual purpose, they will fail.’

Regulatory capture in financial regulators is often fuelled by a revolving door of staff between the City and its watchdogs.

How many watchdogs, across industries, does the UK have?

Prem Sikka said he asked of various Ministers how many regulators the UK has. He thinks there are more than 700 of them and “We have at least 41 dealing with the finance industry alone. … we have 25 dealing with moneylaundering, five with auditing, five dealing with insolvency …”

But “above all, they are all passive. … many people talk about the RBS HBOS frauds, that nobody could have liquidated somebody’s business without the involvement of insolvency practitioners. Insolvency regulators have done nothing – they are just waiting for complaints and evidence to land in their lap. …. There is very little public accountability.

Years of victim-dodging by watchdog chiefs

Both Helen McGregor representing LCF investors and Mark Bishop, who leads the Connaught Action Group for victims of that scandal, flagged up the FCA’s perceived lack of learning from the multi-£million Connaught losses, which long preceded LCF’s mega-loss to consumers. 

 In 2014, Mark Bishop explains how he “put together a presentation” of about 20 minutes with “some thoughts on how Connaught could have been prevented from reoccurring, and how other scams could be prevented.” This was “mostly stuff that the FCA could do without needing any external changes of legislation.”

He explains: “I wrote to [then-chief] Martin Wheatley, he refused to meet me to listen to it. I wrote to every subsequent chief executive including the interims, they have all refused to meet me and listen to the presentation. Twice I’ve been able to meet with direct reports to the then chief executives, and both of those people have said that no change was needed.”

Pressure on Nikhil Rathi to engage with Connaught victims

Somewhat disappointingly, Nikhil Rathi has also refused to meet with Mark Bishop so far as a representative of the Connaught action group, or to look at any of the slides he has produced offering the lessons that could be learned.

However, Mark is hopeful that Rathi is ‘getting his feet under the table’ and that, following the damning review of the Connaught scandal, the situation could change in the new year. What he would like to see is: “a period of engagement with constructive critics and the victims of financial services misconduct – and whistleblowers, because they are the people who have really put everything on the line in order to do the right thing.”

How to address the problem

Mark Bishop is courting for views on the white paper TTF is preparing on this subject: “I think it should speak for and on behalf of those of us in TTF who believe there is scope to improve the FCA and have constructive ideas on how that should be done” he explained at a recent Symposium. “Just drop me one sentence on your honest view of the FCA, and … one idea, no more than a paragraph for how you would improve it, which won’t require large amounts of legislation”. He is keen to draw those suggestions into a brainstorm of potential reform and incorporate those views into the White Paper.

'Huge learning opportunity' in the legacy of Australia's Royal Commission

Given the persistent furore around financial regulation in the UK, TTF’s founder Andy Agathangelou had a ‘spookily timed conversation’ last week with Dr Andy Schmulow, an Australian expert in the ‘twin peaks’ model of financial services regulation – where financial stability is regulated separately to the City.

Agathangelou felt after the conversation as if a flashlight had been handed to him in the dark: “I have had hundreds of great conversations with people this year, and I think that the conversation we just had is right up there as one of the most significant of all of them.” He explained, pointing up that “Australia has gone through a very very interesting time recently and we are absolutely convinced that there is a huge learning opportunity.”

You can watch Dr Schmulow’s presentation to TTF on the same day here, about 20 minutes in. He delved into how Australia’s financial regulator, called ASIC, was ‘captured’ – in part by a delusion that what is best for the financial industry would always be best for the country. His strong opinion is that the coddling of the financial services industry was not in Australia’s best interests — in fact it had stagnated pay in other jobs for more than a decade.

‘Twin peaks’ regulation applies in the UK, where the Prudential Regulation Authority is separate from the Financial Conduct Authority. Dr Schmulow set out to TTF last week that he had both called for, and contributed to, the Royal Commission on financial misconduct in Australia and he made several observations on what that exposed:

‘An absolute arrogated contempt for the law’

Firstly – what the Commission exposed, in his words, was that there had been an ‘absolute arrogated contempt for the law and active collusion’ by Australia’s regulators. This reality was far worse than the scandal that had given rise to the national inquiry in the first place:

“I had said and others of my colleagues had said that our regulators are captured. And that was in exactly those words, one of the findings of our Royal Commission. That our regulators are captured, deeply captured, suborned to the industry.”

What does ‘regulatory capture’ mean?

Interestingly, he said that to observe that a regulator is ‘captured’ is not necessarily to critique regulatory staff on an individual level. The word ‘capture’ does not equate to outright corruption or bribery. It can instead be ‘insidious’, based on an ideology that what is best for the financial services industry is de-facto best for the country. This ain’t necessarily so. Australia’s Royal Commission found an ‘Oligopoly’ in the financial services sector – and drew a causal link from this to a real detrimental impact on Australia’s population including a lack of real wage increases for the last fifteen years.

A ‘regulator to regulate the regulators’ & its lessons for the UK

After his conversation with Dr Schmulow, “I just see so many parallels between the reasons [a Royal Commission] was called for in Australia, to what I hear day after day after day in relation to the UK situation.” Agathangelou observed. “Who knows maybe the way forward for us as a country is to take a real honest look at what’s been going on and to investigate that as forensically and analytically as possible?”

A key upshot of Australia’s national reckoning with its bankers and watchdogs, was to establish what Schmulow summed up as a ‘Sunshine Commission’, a kind of super-regulator to watch the watchdogs. This idea is not new, Dr Schmulow explained, it goes back to 18th century observations of regulatory capture in the rail-road industry.

On a much smaller scale, TTF’s ‘Regulators Watch’ group, set up by TTF members, is trying to provide some constructive and supportive scrutiny that scam victims have been calling out for.

Looking to international examples

Last week’s Symposium also cast up several other international examples that the UK can learn from. South Africa’s financial institutions ‘fear’ their regulator in Dr Schmulow’s view, as he explained he had advised on legislature there. Their regulator has legal powers to impose fines in the financial services industry without even obtaining a court order, and the regulatory culture there is such that he believes they will not hesitate to take action.

Meanwhile, Germany’s model of corporate governance, where 50% of company board members are workers, might secure a greater financial stability across society than the ‘Anglo-American’ model of corporate governance.

And, to combat revolving doors, South Korea has just introduced a law to try to prevent regulatory capture – putting a three-year hold on those trying to switch careers between the watchdogs and the City. For example, an ex-banker there would have to wait three years before applying to work for a financial regulator, and the reverse. If you have an interest in strengthening watchdogs and accountability, it is worth keeping an eye on how that design pans out.

Press Timeline of relevant articles:

21 Dec 2020Financial Conduct Authority fines just ten wrongdoers this year by Patrick Hosking in the Times

19 Dec 2020 Andrew Bailey could return to face MPs after damning report on London Capital & Finance scandal by Ben Martin & Patrick Hosking for the Times

18 Dec 2020Google urged to vet online financial promotions better by Huw Jones for Reuters

18 Dec 2020Financial Conduct Authority insiders warned of London Capital & Finance-style minibonds in 2013 but nothing was done by Jim Armitage for the Evening Standard

18 Dec 2020Blue Gate escapes $13.5 million Connaught fund fine from FCA by Huw Jones for Reuters

18 Dec 2020Executives at Financial Conduct Authority to lose bonuses over London Capital & Finance scandal by Ben Martin for the Times – Bosses at the Financial Conduct Authority will lose £205,000 in bonuses after the highly critical report on the regulator’s handling of the London Capital & Finance scandal

17 Dec 2020The fallout from the financial regulator’s shocking failure on LC&F is not over yet by Nils Pratley for the Guardian

17 Dec 2020FCA did not ‘effectively supervise’ collapsed mini-bond issuer LCF, says report by Matthew Vincent for the Financial Times  “Members of the Transparency Task Force, a lobby group pushing for regulatory reform, pointed out that in his own representations to the Gloster review, Mr Bailey included a demand “to delete references to ‘responsibility’ resting with specific identified/identifiable individuals”.

17 Dec 2020Former Financial Conduct Authority boss Bailey apologises over handling of mini-bond scandal by Ben Martin for the Times

16 Dec 2020EU cannot be ‘captured’ by City of London, warns financial services chief by Sam Fleming and Jim Brunsden for the Financial Times

16 Dec 2020Treasurer plots ASIC shakeout by John Kehoe for Financial Review

15 Dec 2020How to remake Australia’s lame corporate watchdog by Pamela Hanrahan for Financial Review

03 Dec 2020HMRC ‘treat the victims of pension scams like criminals’: Taxman has benefited from the ‘proceeds of crime’ MPs are told by Tom Kelly for Daily Mail

25 Nov 2020FSCS seeks extra £92m in interim levy by Daniela Esnerova for MoneyMarketing

25 Nov 2020  – Trump Administration Targets Banks Divesting From Fossil Fuels In New Anti-Climate Rule by Sharon Kelly for DeSmogBlog

23 Nov 2020Bank of England policymaker warns of ‘pandemic hangovers’, as private sector shrinks – as it happened by Graeme Wearden for the Guardian

16 Nov 2020 – Bank of England ‘failing’ on climate change reform by Philip Aldrick for the Times

16 Nov 2020 – Fed moves closer to joining global peers in climate-change fight by Ann Saphir for Reuters

14 Nov 2020Fraudsters will exploit Covid vaccine to con vulnerable, warns National Crime Agency by Charles Hymas for Telegraph

09 Nov 2020Ombudsman inundated with complaints about loans by Katherine Griffiths for the Times

09 Nov 2020Spike in personal pension cases at ombudsman by Rachel Mortimer for FT Adviser

09 Nov 2020 – Regulator: Climate risk ‘looms even larger’ than pandemic by Avery Ellfeldt for ClimateWire (U.S.)

08 Nov 2020How financial services watchdog has reacted to UK consumer worries in Covid by Hilary Osborne for Guardian

08 Nov 2020Five predictions for banking regulation in a Biden presidency by Jon Hill for Law 360

05 Nov 2020Martin Lewis warns of ‘epidemic of scams’ after ICU nurse loses £8,000 by Scott Edwards for Wales Online

05 Nov 2020FCA bans adviser trio jailed for sex offences by Rachel Mortimer for FT Adviser

03 Nov 2020 – ‘We haven’t received a penny’: Business interruption insurance row intensifies as owners fear payout delays, by Elizabeth Anderson for iNews

03 Nov 2020Aviva’s shares fiasco highlights weakness of the city watchdog by Patrick Hosking for the Times

02 Nov 2020Banks have done little to help the country through the pandemic, so why is the government rewarding them? by Simon Youel for the Independent

29 Oct 2020 – Calls to sack Malta financial regulator CEO by Cristian Angeloni for International Adviser

27 Oct 2020U.S. group urges Biden to use financial regulation to control climate change by Valerie Volcovici for Reuters

27 Oct 2020 ‘Impact startups’ continue to raise funding during the pandemic despite difficulties faced by the wider tech startup sector by Sebastian Klovig Skelton for Computer Weekly

26 Oct 2020 – Why there must be thorough probe of claims made by Bank Signature Forgery Campaign – Greg Wright  for the Yorkshire Post

26 Oct 2020 –  Critics demand action over ‘flawed’ British Banking Resolution Service by James Hurley for the Times

24 Oct 2020Banks look to debt collectors to recover bounce back loans by Nicholas Megaw, Stephen Morris and Daniel Thomas for the FT

23 Oct 2020Bank Signature Forgery (film) by Nicholas Wilson for Corruption UK

22 Oct 2020 – UK fraud agency suffers string of senior departures by Kate Beioley for the FT

22 Oct 2020 HSBC froze £1.5bn of customers’ cash in ‘dormant accounts’ – report by Kalyeena Makortoff & Juliette Garside for the Guardian

22 Oct 2020Work harder to find fraud, watchdog tells auditors by James Hurley for the Times

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

15 Oct 2020 – MPs Push Agencies to Act on Forged Signature Claims by Law360

13 Oct 2020 –  Mark Carney says banks should link executive pay to Paris climate goals by Kalyeena Makortoff for the Guardian

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 2020MPs 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

03 Oct 2020 – Record number of savers fall victim to investment fraud as scam adverts stay on Google by Andrew Ellson for The Times

02 Oct 2020A New Theory of Soil by Alex Varley-Winter for SustainAct

 
 
 
28 Sep 2020 – PM urged to show leadership in fight against scams by Amy Austin for FT Adviser
 
28 Sep 2020The 100 Whistleblowers who changed Wall Street by Stephen M. Kohn and Mary Jane Wilmoth for National Law Review
 
28 Sep 2020TTF calls for govt leadership on pension scams following meeting with PM by Sophie Smith for Pensions Age
 
 
26 Sep 2020 – £60m revamp for Action Fraud hotline that failed victims by Martin Beckford for The Sunday Times
 
25 Sep 2020 – FCA labels Google’s scam advert efforts ‘deeply frustrating’ by Rachel Mortimer for FT Adviser
 
23 Sep 2020 – Bank Forgery Campaign (video) by Andy Verity for BBC
 
 
20 Sep 2020 – Explore the FinCEN Files Data and Suspicious activity reports, explained by the International Consortium of Investigative Journalists (ICIJ); Fergus Shiel and Ben Hallman
 
21 Sep 2020 Flood of complaints expected over Covid-19 UK business loans, by Kalyeena Makortoff for the Guardian
 
 
 
16 Sep 2020 – Regulators Accused of Ignoring Scam Warnings by Jack Gray for Pensions Age
 
16 Sep 2020Tougher clampdown on pension scams is needed, MPs told by Vicky Shaw for Belfast Telegraph
 
 
11 Sep 2020 – ‘Delay changes to Watchdog Complaints Scheme’ by James Hurley for The Times
 
 
03 Sep 2020Regulators have not yet got to grips with how to close down crooks, warns TTF  by Hope William-Smith for Professional Pensions
 

24 Aug 2020Financial Conduct Authority rushes to minimise compensation for its failings by James Hurley for The Times

04 Aug 2020Have 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 2020HMRC figures show plunging pension freedom withdrawals by Hope William-Smith for Professional Adviser

28 Jul 2020MPs launch inquiry into pension scams  by Tom Kelly for Daily MailUK 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

22 Jul 2020Pension scams increase amid lockdown by Sophie Smith for Pensions Age & Missed Opportunity to Use Victims in Scam Work by Amy Austin for FT Adviser

21 Jul 2020  Londongrad Calling: Is Europe’s Laundromat the ‘New Normal’? by Mark Conrad

20 Jul 2020 Campaigners Aim to Create Pension Scam Database by Michael Klimes & Government eyes unauthorised firms by Justin Cash for MoneyMarketing

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

14 May 2020 – Under Rising Pressure on Climate, JP Morgan Rejects Shareholders’ Calls to Disclose Carbon Footprint by Alex Varley-WInter for DeSmog

11 May 2020 – FCA urged to build public trust in independent reviews by Rachel Mortimer for FT Adviser

30 Apr 2020 – FCA was warned three years ago about mini-bond firm Blackmore Bond, which collapsed with £45m of savers’ money by Ben Chapman for the Independent

15 Apr 2020 – Met police lose two thirds of finance officers as fraud soars by Ben Ellery for the Times

25 Mar 2020 – Care Home Wants NatWest Docs in Misselling Fight by Law360

20 Mar 2020 – Connaught review delayed as Covid-19 concerns loom by Rachel Mortimer in FT Adviser

07 Jan 2020It’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’, and ‘Making millions from other people’s misery’: A Government adviser, call centre chief and pension scheme director are among those who stand accused of involvement in pension schemes that exploited loophole in the law by Tom Kelly for the Daily Mail

15 Aug 2019Victims hit by Connaught’s collapse blast City watchdog for ‘whitewashing’ independent review by Lucy White for Daily Mail

05 Aug 2019Plunder in paradise: The ‘adviser’ behind a Costa scam that has cost expat pensioners £25MILLION – and led one to attempt suicide by Laura Shannon for Mail on Sunday

05 Jul 2019 Government-owned bank ‘forging signatures’ in repossession cases by Andy Verity for BBC

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

13 Jun 2019 – Investigation into disgraced RBS small business unit branded a ‘whitewash’ by MPs by Ben Chapman for the Independent

29 Mar 2019MPs call for inquiry into alleged forgery of signatures by Andy Verity for BBC

15 Feb 2017 – RBS accused of fraud & forgery by customers and ex-employee by Andrew Hosken for The World Tonight BBC Radio 4

22 Dec 2016Solicitors suspended for roles in collapsed Brazilian investment scheme by Nick Hilborne for Legal Futures

23 Sep 2016Which? makes scams super-complaint by Adam French for Which?

08 Aug 2016The Latest Bank Interest Rate Scandal Signals A Crisis Of Australian Democracy by Professor Carl Rhodes for New Matilda