Campaigner criticises FSCS independence in Lehman case

Campaigner criticises FSCS independence in Lehman case

A campaigner representing consumers still seeking full compensation on investments underwritten by failed investment bank Lehman Brothers has called for greater checks and balances to decisions made by the financial services compensation scheme.

Peter Howard, founder of the mis-sold investments action group that represents about 30 investors who lost money on Lehman-backed structured products after it filed for bankruptcy in 2008, said FSCS independence could be detrimental to consumers.

Mr Howard’s campaign concerns five capital-at-risk products marketed by UK firms and backed by Lehman Brothers.

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The FSCS judged that investors in these products had been given adequate warnings of the risk involved – but the FSA raised concerns that marketing materials for the products did not fairly and clearly reflect the counterparty risk involved.

An FSCS update in September 2010 stated: “Following our review, we are satisfied that the relevant marketing materials provided adequate and appropriate warnings that there was a risk to investors’ capital if the organisation backing these investment products failed.

“This risk is known as the counterparty risk and the firm backing these investment products was in each case part of the Lehman Brothers group.

“Investors will not therefore have claims arising from the materials generally and we will not send application forms to all known investors with capital-at-risk products.”

But in April 2013, a freedom of information request revealed that the then-FSA had raised concerns about how the Lehman-backed capital-at-risk product plans were marketed.

An extract from a review of structured product marketing communications, dated 29 January 2010, said: “FSA considers that while investment risk is dealt with acceptably, none of the brochures fairly and clearly reflect the true counterparty risk in terms of prominence within the brochure and prominence relative to the investment risks; directness of language used to describe the risk and in particular the consequences of the risk crystallising; and unequivocal statement of the risk.”

Mr Howard claimed that in 2014, the economic secretary to the Treasury, Andrea Leadsom, told him the government could not influence FSCS.

He said: “It has been confirmed that the government has no power to instruct the FSCS to abide by the FSA decision. This is despite the indebtedness of the FSCS to the Treasury.”

Right to reply

A spokesman for the FSCS said: “We are impartial and independent of the government and the financial industry, and were set up under the Financial Services and Markets Act 2000, becoming operational on 1 December 2001.”