RegulationMay 7 2013

FCA slammed over backroom settlement deals

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ByDonia O’Loughlin

The Financial Conduct Authority has been told it must be more transparent about settlement agreements reached with firms at the centre of major industry scandals, as both the advisory sector trade body and its own practitioner panel have hit out over backroom deals.

In its response to the FCA’s transparency discussion paper, the Association of Professional Financial Advisers said that the regulator often did not get the “balance between confidentiality and transparency right”, in particular highlighting the £54m Arch Cru settlement with Capita and others.

The trade body flagged up that it has never been made clear how the £54m redress payment was arrived at, nor the factors that were taken into account when this settlement was agreed. There is concern that the regulator found an easier target in advisers, Apfa said.

For example, the FSA appeared to find it acceptable that 30 per cent of financial advisers who advised on Arch Cru might fail as a result of the redress scheme, yet let Capita off the payment of a fine due to its inability to fund it despite it being part of “one of the largest groups of companies in the UK”.

Apfa also cited examples from the US of judges questioning the Securities and Exchange Commission over similar deals, highlighting one judgement in particular where the brokering of a confidential deal was branded “counterintuitive and incongruous”.

The FCA Practitioner Panel agreed with Apfa, citing that it expressed strong concerns earlier this year in relation to the information made available after the failure of the Arch Cru funds.

The panel did not oppose advisors paying redress in cases where there had been mis-selling, but said “responsibility needs to be fairly shared”.

It has urged the regulator to take steps to provide greater transparency around such settlement and redress schemes in the future.

The panel said: “Without it, there is a lack of accountability of the regulator (in ensuring that there has not been preferential treatment provided to larger firms) and a lack of trust amongst the industry at large that the right thing will be done.”