A country’s Laws constitute its society’s ultimate reflection of its principles of Justice. In the context of the elements of Common Law we have studied within this website-book, it can be asserted that, in the United Kingdom, the judiciary have given rise to a Common Law Justice System that is strong, fair and just.


Equally, in the context of the elements of Statute Law we have studied within this book, it can be asserted that, in the United Kingdom, the legislature have enacted Statute Law that is strong, fair and just.

This is most clearly manifest within the Financial Services Act 1986 (and within the Successor Financial Services and Markets Act 2000):

	(a) ––– by the legislature’s unequivocal codification of the precedents already set under the U.K. Common Law Justice System to the activities of persons and institutions dealing in financial services products, and
	(b) ––– by the legislature’s unequivocal and reinforced application of the Fraud provisions already set under the U.K. Criminal Law Justice System (within the U.K. Theft Act 1968) to the activities of persons, institutions, and the responsible management personnel of those institutions, dealing in financial services products.

And, in the context of confronting such Fraud, it has become even further manifest by their enactment of the Fraud Act 2006.

BUT, while it can be asserted that the U.K. Law as it relates to governance of the Financial Services Industry is strong, fair and just, the application of such Law, through the Regulatory Bodies mandated or empowered with its enforcement, is a whole other matter.


The policies adopted by the respective Regulatory Bodies must be seen as being, first and foremost, protectionist of the Financial Services Institutions and, most particularly, of their Management Personnel. The perceived progression in the application of Financial Services Legislation through the successive Regulatory Bodies is very much tainted by their subtle perpetuation of The Whitewash of Law.

---

 

Consider the legal environment within which the Self Regulating Organisations, LAUTRO and FIMBRA, operated prior to when the U.K. Financial Services Act 1986 came into effect (i.e. prior to 29th April 1988).


Remember that by this time the circumstances that gave rise to a Fraudulent, Negligent or Statutory Misrepresentation had been solidly established within U.K. Common Law and Statute Law (see Section 2.3), as had the respective Measure of Damages following from such Misrepresentation (see Section 2.8).


But, only the Self Regulating Organisations and the Management Personnel of the Financial Services Institutions, i.e. those parties dealing directly with consumer complaints, would have had a full awareness of the exact nature and substance of consumers’ grievances.


The nature of those grievances was such that, in the matter of the means by which Financial Services Institutions and those dealing in their investment products unfairly induced consumers to invest in such products, the issues of Fraudulent, Negligent and Statutory Misrepresentation were paramount. (This will be proved beyond all doubt, again and again, in the Chapters that follow.)


The substance of those grievances was such that the exposure of the Financial Services Institutions to damages was widespread. AND, if it were ever to be properly investigated, the exposure of the Management Personnel of those Institutions to criminal prosecution was equally widespread.


The Financial Services Institutions’ Management Personnel and their Self Regulating Organisations were therefore fully aware of just how exposed they would be if ‘what was going on?’ (i.e. the systematic misrepresentation of investment products to consumers) ever came to the knowledge of the Legal Profession.


To keep the lid on matters, the Self Regulating Organisations adopted a blanket Whitewash Policy.


A system of Regulation was devised, whereby the issues of infringement of Common Law and Statute Law were effectively bypassed.


By channelling consumers’ grievances towards their own (i.e. the Self Regulating Organisations’) parallel quasi-judicial system, a system over which they had full control, the Self Regulating Organisations were able to exclude, or effectively neutralise, the U.K. collective legal consciousness.


This contrived redundancy of the legal profession, and of the Crown Prosecuting Authorities, was achieved by applying a collusive distortion of Law that was premised on a whole new concept: 

                                                     ────── the concept of Mis-selling.

---

What is Mis-selling ?

Mis-selling — is a concept whose very genesis is corrupt !

Mis-selling — is a term propagated by the U.K. Financial Services Industry as a blanket-term for all infringements, from the minor to the downright criminal.

Mis-selling — is a term whose primary purpose has always been to divert the attention of the Legal Profession and the Crown Prosecuting Authorities away from what is actually happening, the widespread Fraudulent, Negligent and Statutory Misrepresentation of investment products to consumers.

Mis-selling — is a term used to cloud the actions of those within the Financial Services Institutions, most particularly the Management Personnel, and to ensure that all investigations are dealt with within their Self Regulating Organisations’ restricted domain, thereby, maintaining full control over the determinant criteria that would give rise to compensation for the consumer and over the extent of any such compensation, and — most critical to their own personal enrichment going forward — ensuring that a judicial Common Law and Statute Law interrogation of their investment products would never be undertaken.

Mis-selling — is a term by which those within the Financial Services Sector can avoid the just legal consequences of their actions.

Mis-selling — is a term used to sanitize Fraud.

Mis-selling — is, therefore, the ultimate gloss-over term endemic to the Whitewash Policy adopted by U.K. Financial Services Management Personnel and their Self Regulating Organisations.

NOTE ! As will be seen in Section 2.5.8, The Appalling Vista, this concept of Mis-selling, with its facilitation of the Whitewash of Law to protect those within the Financial Services Institutions, would continue to be used by the FSA when it took full control of the U.K. Regulatory Regime.

---

 

Following the enactment of the U.K. Financial Services Act 1986, the Securities and Investments Board (SIB) introduced the Financial Services Conduct of Business Rules. To maintain self-regulatory control, the Self Regulating Organisations, LAUTRO and FIMBRA, duly altered their Conduct of Business Rules in conformity with the ‘safeguard’ stipulations of the Act.  (See Section 2.5.2 and Section 2.5.3.)


In 1994 the Life Assurance and Investment Management Regulatory Organisations merged to become the Personal Investment Authority (PIA).  In 1995 the Personal Investment Authority, in turn, adopted the LAUTRO and FIMBRA Rules (which had already been adopted to conform with the requirements of the Financial Services Act 1986) into the PIA Rules.


In October 1997 the FSA replaced the SIB as the Designated Agency empowered by the Secretary of State under the U.K. Financial Services Act 1986. (See Section 2.5.4.)


Throughout all this time, dealing with consumers’ complaints, and enforcement of the Regulations on the conduct of investment business, remained under the direct control of the Self Regulating Organisations, LAUTRO and FIMBRA, and, following the merging of these Organisations in 1994, the PIA.


Even though the PIA came under the authority of the FSA in 1997, and even though the FSA was to take a much more pro-active role in how regulatory activities were conducted from 1999 onwards, the PIA still retained control with respect to dealing with consumers’ complaints (these were dealt with by the PIA Ombudsman) and with respect to enforcement of the Regulations.

---

 

It was at this time (i.e. in 1997) that the massive extent, of what is euphemistically referred to as the Personal Pensions Scandal, was finally acknowledged by the FSA. Even though it had become clear as far back as 1992, and research had confirmed the problem in 1993, and a review by the Financial Services Regulatory Bodies had commenced in 1994, it was not until 1997, when the FSA itself took control, that the review was finally concluded.


It came to light that millions of consumers who were members of occupational pension schemes had been advised, circa the late 1980s and early 1990s, to transfer their funds into personal pensions. In general, the advice given was deemed to be motivated by the commission the advisor would receive following the sale of the new pension policy (i.e. on transfer of the consumer’s funds).


But, be absolutely certain of this: only a proportion of the ‘cream off’ from the consumer’s funds transferred would actually go as commission to the adviser / intermediary who executed the sale. Internal distribution mechanisms within the Financial Services Institutions would ensure that the Management Personnel of those Institutions also received their cut from the ‘cream off’; it would proportionately feed into their remuneration, one way or another. It was for this reason that the practice engaged in by the pension advisors / intermediaries was almost universally condoned by the Management Personnel of the Financial Services Institutions.


Yet, in dealing with this Scandal, the Section 47 fraudulent misrepresentation provisions of the U.K. Financial Services Act 1986 were never invoked. For if they had been invoked, then the Section 202(1) consent, connivance or neglect provisions, with respect to the Management Personnel of the offending Financial Services Institutions, would also have had to be invoked. (See Section 2.5.1.)


BUT, it would appear that, in the eyes of the FSA, this was ‘such an appalling vista’ as not be countenanced.

The course of action taken by the FSA was such that the protection of the Management Personnel of the Financial Services Institutions was put before the pursuit of Justice and the betterment interests of society.



Most disturbing  ──────  this meant that:

Those who most benefited financially from the sale of these pensions products effectively went unpunished, with any penalties that were levied being levied on the respective Financial Services Institution itself.

------------------------------

And so, the misrepresentation of investment products to consumers would continue to be the order of the day within U.K. Financial Services Institutions.


The ‘cream off’ from consumers’ initial stage investments could be fed into the whole Management Personnel remuneration structure, independent of any payments from the employer Financial Services Institution by way of wages, share options or performance bonus, and the legal consequences, if any, of an exposed misrepresentation (mis-selling) of the investment products would fall on the Financial Institution itself, not on the beneficiaries of the misrepresentations. If the Financial Services Institution benefited from the transactions also (as would generally be the case), then so much the better, for that too would further add to Management Personnel’s remuneration by way of performance bonuses.


The ethos fostered by such Management Personnel within respective Financial Institutions was therefore such that, not only was the consumer to be treated as a subspecies, but so too was the shareholder.


The Management Personnel could use the Financial Services Institutions, the very Institutions that they had been entrusted to manage, as a vehicle to introduce, promote, and channel consumers towards, investment products that were primarily geared towards their own personal enrichment  ────  ALL, safe in the knowledge that the Regulatory Regime was such that there was a ‘very low to zero’ probability of any direct consequences for them.

---

 

The Personal Pensions Scandal was the first big test of the true mettle of the U.K. Financial Services Authority in the matter of Justice.


Unfortunately, in choosing not to directly confront the most substantive issue –––– the widespread consent or connivance of, or neglect by, the Management Personnel of U.K. Financial Services Institutions in the fraudulent misrepresentation of pensions products to consumers –––– the FSA chose continuance along The Whitewash Road adopted by their predecessor Self Regulating Organisations.

This was a road, once taken, from which there was no turning back.

So, when the next ‘appalling vista’, in which there was widespread consent or connivance of, or neglect by, the Management Personnel of Financial Services Institutions in the fraudulent misrepresentation of investment products to consumers, began to dawn –––– i.e. in the means by which consumers were induced to enter into Endowment Mortgage Contracts ──── the Whitewash Policy was once again put into effect.