Recessions and depressions may well uncover what the auditors can’t find. We are now seeing that the same applies to regulators and compensation schemes too. Not just what they miss about regulated firms but what they miss about themselves as evidenced by the FSCS shambles.
Aifa’s challenge to the FSCS to publish its legal advice over Keydata and its baffling inclusion with other advisers for the purposes of the scheme or at least most of the payout required, is probably the best response one could imagine.
The FSA and FSCS need put on the spot for this, before the final demands for payment land on IFAs’ doormats. Indeed it shows just how awry relations have become between the regulator and the regulated that a full, frank explanation was not provided initially. Hopefully if we do get to see it, the legal justification will also give us an indication of how the original miscategorisation occurred. If not we will also need an explanation of this.
What worries me slightly is the basis of any legal challenge requiring potentially a proof of a “mindset of reckless indifference” with the Bank of England getting away with this over BCCI.
I would argue that in some areas of regulation a ‘mindset of reckless indifference’ does apply because the FSA/FSCS/FOS apparatus forgot about the mechanics of regulation or in other words doing their job. They got far too concerned with the latest consumer demands, the problems with the ’system’, and the political environment. Somewhere in the sea of initiatives the FSA forgot that if its own nuts and bolts weren’t screwed together properly then it would fail to help consumers anyway.
But it worries me if this goes near a judge. I am not a lawyer but I fear ‘mindsets’ are very difficult to prove especially within an institution or collection of institutions. I fear this protects regulators from mere incompetance when it should be penalised for that too. But let’s hope not.
Mindset is very much what this is all about. Over the years I have asked the FSA and others why they have decided to this and that. I have always received a reply but never an answer.
Yesterday I received a reply from the Treasury regarding the RDR requirements. The letter was by and large a repeat of the aims of the RDR to improve public confidence. My questions were basically ignored.
Now in my view if you don’t understand the question you are unlikely to find the answer.