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My response to the "Complaints against the regulators" consultation

The proposed changes to the existing complaints scheme are undesirable. However the existing scheme also has serious deficiencies.


Posted 12 September 2020. Updated 16 October 2020.

I learned about the Transparency Task Force ("TTF") for the first time in July 2020 via one of my colleagues in the UK Shareholders' Association.

Since then I have attended some of their symposiums, and am currently reading their book "Why we must rebuild trustworthiness and confidence in financial services and how we can do it."

Via TTF I learned that the financial services regulators, the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England are conducting a consultation, with a very tight deadline, about revisions to the compensation scheme that applies when they are at fault and customers suffer losses due, at least in part, to their regulatory failure.

The consultation document "Complaints against the Regulators FCA – CP20/11* PRA – CP8/20" was issued on 20 July 2020 with responses due by 14 September 2020. (See below about the extension of the deadline to 12 October 2020.)

I got interested, and have taken part in a couple of Zoom meetings and cast an eye over the TTF's draft response to the consultation. That was submitted on 12 October 2020 and TTF has now published it on their website.

However I undertook to submit a personal response as well. That is reproduced below.

My response letter

12 September 2020

By email to: [email protected]

The Financial Conduct Authority
FCA Head Office
12 Endeavour Square
E20 1JN

Dear Sir

Complaints against the Regulators
Consultation Paper FCA – CP20/11

I am writing to respond to the above consultation paper. I confirm that this response may be published by you, but if you do so please redact my email address.

As a preliminary point, I share the concerns of Rt Hon. Mel Stride MP, Chair of the House of Commons Treasury Committee, expressed in his letter to your Interim Chief Executive that the abbreviated consultation period over the summer when many people are away on holiday is entirely inappropriate.

At the very least, the consultation period should be extended. Furthermore, it appears that the FCA gave very little publicity to the launch of the consultation, and such publicity should now be given alongside the extension. In addition, those who have submitted responses to you at short notice should be asked if they wish to expand their responses with the additional preparation time made available by an extension of the response deadline.

Even more fundamentally, I consider that revisions to the scheme, if any, should be informed by the findings of three external reviews will soon be published into cases in which the FCA has been accused of acting in ways that led to consumers and small business owners suffering large financial losses. These are:

Accordingly, this present consultation should be terminated, and a new consultation launched once those three external reviews have been published and digested.

However, as I cannot be confident that you will either extend the consultation period or suspend the consultation entirely pending the publication of those three reviews, I am responding within your original deadline.

This letter is divided into the following sections.

  1. Information about me
  2. The specific questions which your consultation document asks
  3. My response on the scheme more generally

1. Information about me

I am a chartered accountant, a chartered tax adviser, and an associate member of the Association of Corporate Treasurers. Before retirement, I was a tax partner in PricewaterhouseCoopers LLP where many of my clients were in the financial services industry. If you want to know more about me, see the “About me” page on my website.

In retirement, I manage my personal investment portfolio whose holdings include a number of regulated financial services companies, and am a customer of the industry by virtue of my ISA, SIPP, bank accounts and credit cards. I am also a member of the policy team of the UK Shareholders Association, but stress that this response is in an entirely personal capacity.

For completeness, I have to my knowledge never suffered a loss which might be associated with regulatory failure. I am responding purely because I care about the quality of financial services regulation in our country.

2. The specific questions which your consultation document asks

Your consultation document asks the following questions:

Q1: Do you agree the language in Annex 2 is more accessible than the language of the current Scheme? Will the Scheme as proposed achieve the objectives set out in paragraph 3.3?

Q2: Do you have any comments on our approach to ex-gratia compensatory payments for distress or inconvenience?

Q3: Do you have any comments on our approach to ex-gratia compensatory payments in respect of financial loss?

Q4: Do you agree with our proposals for implementing the new Scheme?

Q5: What impact do you think our proposals in this consultation paper will have on persons who share protected characteristics?

I will first set out my very brief responses to your questions, and then expand upon my concerns.

Q1 - The language of Annex 2 is clearer than the present scheme. However, the proposed scheme is itself unsatisfactory.

Q2 - Describing these payments as “ex-gratia” in the scheme language does not appear appropriate. The law in Financial Services Act 2012 requires you to establish a complaints scheme, and in certain circumstances you may be required to make “a compensatory payment to the complainant” (FSA 2012 s87(5)(a)). The law does not limit this payment to compensation for financial loss. The language applies as much to compensation for distress that your failure has led to, as it does to financial loss that your failure has led to.

Q3 - For the reasons given above, it is also incorrect to describe these payments as “ex-gratia.” The statute protects the regulator from civil suit (except in two limited circumstances) but proceeds to set out an alternative statutory framework for compensatory payments when you have failed in your duties. Describing the payments as “ex-gratia” in the scheme language is not appropriate.

Q4 - As explained below, I consider that both the existing scheme and the proposed new scheme fail to meet the requirements of the legislation. Accordingly, I do not agree with implementing it.

Q5 - The proposed changes appear intended to limit the quantum of compensatory payments and to narrow the circumstances in which they are paid. They are likely to have a particularly adverse effect on people who are older (because a greater proportion of older people than younger people are investors and therefore regulatory failure impacts disproportionately on older people) and on people who have some level of mental disability and who are therefore more likely to become victims of disreputable firms that regulators have failed to regulate properly.

3. My response on the proposed scheme more generally

FSA 2012 sets out the overall framework for financial services regulation in the UK. That framework is designed as a coherent whole. For example:

FSA s 87(5) is reproduced below:

(5) The complaints scheme must confer on the investigator the power to recommend, if the investigator thinks it appropriate, that the regulator to which a complaint relates takes either or both of the following steps—

(a) makes a compensatory payment to the complainant, or

(b) remedies the matter complained of.

This does not limit the quantum of compensatory payment that may be recommended.

The existing Complaints Commissioner has published his response to your current consultation, at the URL

I will not reproduce in full the section “Compensation” since the document is already in your possession.

My view is the same as his, namely that the statute does not limit the compensation that may be recommended. He writes: “However, where the regulator is the sole or principal cause of a complainant’s demonstrable financial loss, in my view the presumption should be that the regulator will compensate the complainant in full.”

I have several concerns about the existing scheme, and these concerns apply even more strongly to the proposed revisions in the consultation document.

A. Description of compensation payment

Paragraph 6.6 of the present scheme ends with the words “or, if appropriate, the offer of a compensatory payment on an ex gratia basis.”

While it is correct that the complainant has no legal right of action against the FCA, in my opinion it is not appropriate to describe compensation being paid under a scheme required by law as “ex gratia”, and the use of such language in the scheme document appears intended to influence (downwards) the Complaints Commissioner’s decisions regarding the quantum of compensation to recommend.

B. Quantum of compensation

Paragraph 7.14(d) of the present scheme reads:

“the impact of the cost of compensatory payments on firms, issuers of listed securities and, indirectly, consumers.”

This is clearly intended to create an environment where the compensation amount paid (and of course payable only when the FCA has failed to perform its functions properly) is lower, possibly significantly lower, than the losses suffered by the harmed customer.

The consequence is that a part, possibly most, of the losses arising from the misconduct of firms combined with the failure of the FCA to properly perform its functions fall upon the individual customers of those firms, rather than being born by the industry as a whole, as costs paid out by the FCA are spread over the industry via the FCA’s levy.

That is a deficiency of the present scheme for the reason explained below. It would be an even greater deficiency of the proposed new scheme, which contains a table setting out low amounts of compensation which the FCA clearly sees as effective maxima.

The reason the above policy is deficient is that it indirectly encourages the continuation of poor industry performance and poor regulatory performance.

In my opinion, “good” firms should bear the full cost of customer losses caused by the deficiencies of “bad” firms where poorly performing regulators have failed to regulate the “bad” firms adequately. The reason is that it would change the behavioural incentives in the industry, and “good” firms would be much more likely to inform the regulators when they become aware that other firms are behaving badly.

Furthermore it would also change the behavioural incentives of the FCA and its staff, since they would be much more cognisant of the potential amounts of compensation that might have to be socialised over the FS industry if they fail to stamp down hard on badly behaving firms early enough to avoid large scale harm to customers.

Yours faithfully

Mohammed Amin

Subsequent developments

As mentioned above, the Treasury Committee's chair Mel Stride MP wrote yesterday, 11 September, to the regulators asking for the consultation to be extended.

The Financial Times picked up the issue and later on the same day ran the story "UK MPs urge financial regulators not to rush changes to complaints scheme."

Literally 10 minutes after I had submitted my response (which calls for the consultation to be preferably terminated to await the publication of the reports mentioned, or if not then for the deadline to be extended) I learned that the consultation was indeed being extended to 12 October.

Accordingly there is plenty of time for others to respond if they wish to do so.


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