Once again we see reported those five words “The FSA declined to comment”.

They are normally uttered when awkward questions are asked that should elicit a degree of clarity and a willingness to be more open about their dealings, especially when livelihoods are at risk.

Sadly the comments that do seem to come from somewhere deep inside Canary Wharf relate to protecting those on the inside.

You may wish to do a search (we tried Money Marketing) for the words “FSA declined to comment” it produced 44 results.

Why is a regulator so reluctant to be open with those it regulates?

This latest “batten down the hatches” response comes as it would seem that some FSA board members were opposed to the Arch Cru redress scheme

Minutes from the regulator’s meeting, held on 13 December, showed concerns from board members such as;

  • concerns that if a full scheme was used, this would cause a number of IFAs to go out of business and add to consumer detriment on a wider scale due to the potential cost of changing advisors;
  • the full scheme would likely affect the cost and availability of Professional Indemnity Insurance for IFAs, even for those who did not sell Arch Cru products;
  • it was important to identify the egregious cases and pursue these further from the supervisory side;
  • concerns that firms would not engage in the process;

In particular, the Arch Cru consultation process confirmed that the “majority of respondents were against the proposals and thought that a scheme would be disproportionate, particularly in cases where consumers did not wish to seek redress from their advisers”.

Furthermore, it would appear that the Board had wanted to base the “style and format of the letters to consumers on the results of previous research in order to try to ensure a high number of consumer responses; and the Board also noted that the rules required firms to send all letters to consumers by recorded delivery mail. In cases where the contact details the firm held for a consumer were out of date, the firm must take all reasonable steps to obtain up-to-date contact details. The rules also contained a number of reporting requirements for firms, so that supervisors could monitor implementation of the scheme”.

The Board agreed to proceed with the modified “opt in” s.404 scheme.

Sadly, we do not know who expressed concerns, or indeed said anything that could be deemed as off message or contentious but it would seem that the Financial Services Practitioner Panel was very concerned about the “wider consequences” for adviser firms.

Indeed the FSPP did not think the proposals met the criteria for a section 404 scheme, because the FSA was taking its decision on whether the miss-selling was widespread.

Since 2001, section 404 of FSMA has reserved to the Treasury the ability to authorise the FSA to establish any industry-wide review of past business. The Act provides that HM Treasury would need to be satisfied that there had been widespread or regular failure and that private persons have suffered (or will suffer) loss. This takes the burden of proof way beyond incidental shortcomings within particular firms. Moreover, the Act requires the Treasury to proceed by way of specific Order, which must be approved by both Houses of Parliament.

The FSA is therefore not able, as previous regulators were, to order industry-wide reviews of past business on its own account.

The FSPP rightly wanted to ensure the distribution of liabilities was fair in supporting the need where appropriate, for consumer redress but did not think that Arch Cru had been the subject of widespread miss-selling.

Days after the meeting in December, the FSA gave advisers from April 2013 to December 2013 to set up and compensate investors, who choose to have their case reviewed, up to the tune of £141m for Arch Cru losses.

And, you guessed it, when queried by the trade press, the FSA declined to comment.


It is worth our industry and those who regulate to reflect upon a great quote from Steve Jobs. He said “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.

And that is the problem of regulation.