Over-exposure

Published by Financial Adviser 21 April 2011.

The Complaints Commissioner investigates complaints made by the FSA.  The Complaints Commissioner has no power to enforce any decision or action upon the FSA but he does have the limited power of setting out his position on a complaint and then, if he deems it necessary, to make his recommendations to the FSA.  Those recommendations are not binding on the FSA.

One finding published last month involved a complainant who was unhappy with the actions of the FSA during the early settlement process following an enforcement investigation into that person's conduct.  The complainant alleged that a member of the FSA's enforcement team had stated that unless the complainant settled the matter, it would withdraw its offer of a temporary prohibition and recommend to the Regulatory Decisions Committee that the prohibition should be permanent.  In addition the complainant was unhappy with the FSA's proposed financial penalty because the post discount fine was set at over 99 percent of the complainant's total assets.  The Commissioner concluded that he was not able to consider the level of financial penalty because it was not something that he had the legal power to consider under the complaints scheme.  In addition, the complainant had given up the right to challenge the FSA by signing a settlement document that imposed an undertaking upon both the complainant and the FSA that in settling the matter neither party would look to review the settlement terms or challenge them at a later date.  As for the allegation of being "threatened" and "pressured", the only contemporaneous note of settlement discussions available to the Commissioner was a note produced by the FSA.  The Commissioner concluded that the FSA did not place undue pressure upon the complainant to settle the matter. 

The Commissioner did observe that although the FSA has the legal procedure whereby discussions can take place as to what sanction can be agreed upon, the FSA leaves itself exposed to further similar allegations by complainants if it does not ensure that there is an agreed note of those discussions.

Philip Ryley is a solicitor and Head of Financial Services & Markets at Michelmores LLP, based in Exeter and London.