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FCA accused of not understanding own rules

FCA accused of not understanding own rules

The Financial Conduct Authority does not understand the rules it set to govern pensions, the High Court heard today.

A judicial review was brought by the pensions administrator Berkeley Burke against the Financial Ombudsman Service after the company was ordered to repay the pension of Wayne Charlton who lost his savings to a fraudulent company.

The FCA, which is acting in the case as an interested party, withdrew its backing for one of the key agreed facts in the case -  that its own rules, the Conduct of Business Sourcebook (COBS), applied to the transaction carried out on Mr Charlton's behalf.

Jonathan Kirk QC, representing Berkeley Burke, suggested the COBS rules forced Sipp administrators to carry out the orders of their clients and that prevents companies from carrying out adviser-style due diligence.

But Andrew Henshaw QC, for the FCA, argued that the duty under section 11 of COBS did not apply to the transaction carried out by Berkeley Burke on behalf of Wayne Charlton because the product did not constitute a financial instrument under FCA rules.

He told the court that no-one on the team representing the regulator had noticed the irregularity until last night.

Mr Henshaw said: "If I'm right that COBS 11 doesn't apply to this type of investment, it seems to follow that the ombudsman could not have erred in law."

Mr Kirk, representing Berkeley Burke, said: "Well it's a bit of a volte face. We had approached the case thinking it was agreed that COBS applied.

"It is unfortunate in the way it has been raised because if one looks back in the history of this case it was accepted in 2015 that this was a provision that applied in this case.

"It seems rather a shame that the regulator doesn't understand its own rules."

James Strachan QC, representing the ombudsman, argued that even if COBS 11 did apply, the company failed to apply the duty properly.

"This argument is a startling one - that the claimant had no choice but to put Mr Charlton's money into a fraudulent scheme simply because Mr Charlton instructed them to do so.

"It is untenable. It is in direct conflict with the words of the rules themselves, which talks about 'when executing' not 'you must execute'.

"It is completely contrary to the purpose of best execution. It would mean one sacrifices the basic principle of consumer protection on the altar of the principle that you must execute nonetheless."

He explained that the purpose of the FOS was is to adjudicate disputes between parties so that they do not necessarily have to rely on a court of law.

"That is the scheme that parliament has created, the ability of the consumer to go to the ombudsman to get a result based on the opinion of what is fair and reasonable.

"As to the grounds of challenge, it is very strangely expressed. It is not written down for you in the statement of facts and grounds.

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