JEFF PRESTAGE: Regulation fails, but what is the alternative?

JEFF PRESTAGE: Regulation fails, but what is the alternative – are we better off as consumers of financial products with or without regulation?

Here’s a juicy financial issue you can ponder if you’re looking forward to the weekend extended until tomorrow’s holiday.

“Are we better off as consumers of financial products with or without regulation?”

Provocative, yes, but I throw the question away because I don’t know what the answer is. Regular readers of this column know that I am not a supporter of the current Office of Financial Control.

Not a fan: FCA missed too many megafinance disasters – and then dragged on how to deal with them

Why? Because he missed too many mega-financial disasters – and then lingered on how to deal with them. Turtles and snails come to mind.

Just think of the suspension of the multibillion-dollar Woodford Equity Income fund nearly three years ago.

An event that should never have happened – the FCA had to suppress Woodford’s obsession with illiquid stocks long before they caused the fund to be pulled from the famous drawbridge because the manager couldn’t find enough money to meet heavy redemption requests from investors.

This ultimately led to hundreds of thousands of investors suffering financial losses. It is scandalous that the FCA is still pondering this defeat, wondering what action it should take (if any) against those companies involved in the fund’s demise (of course, it should also look at itself in the mirror, but won’t).

And then there’s the mini-bond disaster: London Capital & Finance, where the FCA was harshly criticized for failing to regulate when the company collapsed, leaving more than 11,000 investors holding nearly worthless investments. The FCA was forced to apologize after a scathing independent examination of its ill-treatment of the scandal.

So this is a case against the FCA. I could present more evidence, but it is strong evidence.

However, as recent developments have shown in the funeral plan provider Safe Hands Plans and the head of trust funds Philips Trust Corporation, no regulation or self-regulation is better. Indeed, it can be argued that it is much worse than a bloated, ineffective FCA.

Both funeral plan providers and corporate trustees are currently operating in unregulated markets. While most companies serve the interests of customers, a minority do not.

In the case of Safe Hands, the directors helped themselves with clients ’money from a trust fund set up specifically to pay for their future funerals. And, as we report on the next page, there are now concerns about the quality (and ownership) of the assets that are within the trust, and their overvaluation.

Things at Philips Trust Corporation are not much better. It is an organization that allegedly ran trusts set up for people who strive to keep their financial affairs in good order when they die.

However, reading the sincere statement of the witness, published by the owner of the company in connection with the appointment of administrators nine days ago, it seems that business incompetence was the agenda.

First, the trusted assets were incorrectly recorded as the company’s assets in the accounts, thereby distorting the financial condition of the business.

Trusts were invested in assets that did not match the age of the client – for example, fixed-rate savings bonds were purchased for people in the late 80’s, when their life expectancy was not so great.

And there was poor accounting of how individual clients ’money was invested.

Worst of all, the bank accounts of the company’s customers were raided to pay people who wanted to take away their assets. This is because the company could not sell the assets assigned to the customers because they were illiquid, so the money kept in the customers ’accounts was used to pay for them. “I felt I had no choice,” the owner said in a statement. Scandalous.

Over the past five years, according to the owner, customers have demanded withdrawals totaling £ 10 million. It admits that it failed to fulfill all these requests due to the fact that the money is in illiquid assets.

My consumer colleague Tony Hetterington says he has never seen such a document before.

So regulation or not regulation? FCA or a revised FCA that regulates the entire financial services market? What is your view? Let me know by writing me a letter.


JEFF PRESTAGE: Regulation fails, but what is the alternative?

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