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- 2.6 Statutory Legislation Governing Investment Business Relating To Consumer Credit Transactions —— THE IRISH POSITION
- 2.6.6 The Whitewash Imperative
2.6.6 The Whitewash Imperative
For Those within the Financial Services Industry
The CLOCK starts Ticking
We have seen in Section 2.6.4, The Irish Regulatory Regime, how the Whitewash of Law wasperpetuated by the Financial Services Industry on two fronts:
| (1) |
––– by using its lobbying power to exert a controlling influence over the content of any Statutory Provisions that could conflict with its interests and, most particularly, with the interests of its Management Personnel, and |
| (2) |
––– by ensuring that its own systems of Self-Regulation, which, when those offices came into being, incorporated a controlling influence over the 'Terms of Reference' of the ostensibly independent offices of the Ombudsman for the Credit Institutions and the Insurance Ombudsman, continued to prevail. |
We have seen how, down the years, there was a continued acquiescence by the Irish legislature to the interests of those within the Financial Services Industry.
Such was the situation prevailing in Ireland, even though there would have been a full awareness among the Irish legislature of the substantive regulatory provisions (including clearly stipulated offences for fraudulent misrepresentation by a Financial Services Provider) that had been in force under U.K. Legislation since as far back as April 1988, when the U.K. Financial Services Act 1986 came into force.
However, as we have seen in Section 2.5.6 and Section 2.5.7, in the United Kingdom, even with statutory status imparted by the U.K. Financial Services Act 1986 to the many Rules and Regulations governing Financial Services activities, the system of Self-Regulation was such that the widespread abuse of U.K. consumers continued. It was only after years of protest that the U.K. government acted to address these abuses and established a single regulator for the supervision of the Financial Services Industry, the Financial Services Authority.
But, over this time, there had also been a continued pressing for statutory reform with respect to Financial Services Regulation in Ireland by a persistent few: most notably, in the unrelenting efforts of the asset management advisor, Eddie Hobbs, but also in the protests of a number of financial services journalists and, ultimately, in a reactive clamour for reform by a number of concerned politicians.
When, in October 1997, the U.K. government established the Financial Services Authority as the single regulator for supervision of the Financial Services Industry, political pressure was finally brought to bear on the Irish legislature.
CHECK ! ──── The U.K. Timeline
(November 1997)
(1) U.K. Financial Services Act 1986 comes into effect on 29th April 1988.
(2) 'Mis-selling' of Personal Pensions becomes evident in 1992 and is confirmed as a major problem by 1993.
(3) Financial Services Authority (FSA) is established as the Single Regulatory Authority in October 1997.
(4) Review of Personal Pensions Scandal is concluded by the FSA by the end of 1997.
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On 13th November 1997, the Irish Dáil (Lower House) ordered that a Joint Committee on Finance and the Public Service be formed to consider public affairs administered by the Department of the Taoiseach (Prime Minister) and the Department of Finance, and also matters of policy for which the Taoiseach and the Minister for Finance were officially responsible.
The Joint Committee was formed from two Select Committees whose members were separately appointed from the Dáil (Lower House) and the Senate (Upper House), and the scope of its mandate included the consideration of Bills, the statute law in respect of which is dealt with by the Department of the Taoiseach and the Department of Finance.
In other words ── the Irish Government / Parliament was, finally, pressured into considering the reform of Financial Services Legislation and Regulation, and the prospect of a Single Regulatory Authority in Ireland for the Financial Services Industry became a reality.
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AGAIN ! ──── IF YOU HAVEN'T ALREADY DONE SO !
READ Section 2.9: The Time Limit for Legal Action —— NOW !
For ── from the moment the Irish Dáil activated its Joint Committee on Finance and the Public Service ── the CLOCK was ticking for those within the Irish Financial Services Industry.
The ONE TRUE CLOCK
The Statute of Limitations
Under Section 11 of the Irish Statute of Limitations 1957 ── actions founded on simple contract, and actions founded on tort, shall not be brought after the expiration of six years from the date on which the cause of action accrued. (See Section 2.9: The Time Limit for Legal Action.)
However, the Act also provides for postponement of the limitation period in the case of fraud, concealment or mistake.
Section 71(1) of the Irish Statute of Limitations 1957 provides that:
Where, in the case of an action for which a period of limitation is fixed by this Act, either —
| (a) |
the action is based on the fraud of the defendant or his agent or of any person through whom he claims or his agent, or |
| (b) |
the right of action is concealed by the fraud of any such person, |
the period of limitation shall not begin to run until the plaintiff has discovered the fraud or could with reasonable diligence have discovered it.
NOTE! Again, as was the case with the meaning of the concept of reasonable in the context of Negligence (see Section 2.3.3), the meaning to be applied to the expression reasonable diligence, in the context of discovering the fraud or concealment as stated within both the U.K. and Irish Limitation Acts, must relate to the diligence to be expected of 'the man in the street' and not the diligence to be expected of someone with a specialist knowledge of the matter at hand.
On the matter of postponement of the limitation period under the U.K. Limitation Act, Lord Denning explained the meaning of the expression 'concealed by the fraud of (the defendant or his agent)' in the King v Victor Parsons & Co (England 1973) where he stated:
"The word 'fraud' here is not used in the common law sense. It is used in the equitable sense to denote conduct by the defendant or his agent, such that it would be 'against conscience' for him to avail himself of the lapse of time."
Note! The explanation of Lord Denning on the criteria to be applied in respect of the similar provision within the U.K. Limitation Act 1939 is more fully set out in Section 2.9: The Time Limit for Legal Action.
NOTE! Remember also that, where a fiduciary or confidential relationship exists, a deliberate breach of duty to disclose equates to fraudulent concealment of the facts not disclosed. We have seen in the U.K. 2006 case of Conlon v Simms [see Section 2.3.4 (a): Where a Fiduciary Relationship or a Special Relationship exists], where Collins L.J. (citing Spencer Bower, The Law Relating to Actionable Non-Disclosure and Other Breaches of Duty in Relations of Confidence and Influence, 2nd edition [1990], by Turner and Sutton) set out within his reasoned conclusions the circumstances that would give rise to a fraudulent breach of a duty of disclosure:
[Reference: England and Wales High Court 401 (2006) (Chancery Division), which can be studied on the British and Irish Legal Information Institute (BAILII) website.]
A New Imperative for Those in Power within the Financial Services Industry
To Supplant the TRUE CLOCK with a FALSE CLOCK
To Whitewash the Statute of Limitations
With the reality of a Single Regulatory Authority being formed to supervise the Irish Financial Services Industry now inevitable, the protection of their own financial interests by those within the Financial Services Sector became the number one priority.
Personal fortunes had been made by many within the Financial Services Sector by the systemic and systematic fraudulent misrepresentation of financial products to customers / clients / consumers.
Also, Those in Power within the Financial Services Industry, whose conduct was such that they had both condoned and colluded in such fraudulent misrepresentations, were now spurred by a whole New Imperative ── Self Interest: the protection of the personal wealth that they had amassed by such conduct.
The greatest fear now among those within the Financial Services sector was that the pervasive fraudulent misrepresentations by which such personal wealth had been acquired would be exposed.
And so, the New Imperative for those in power within the Financial Services Industry was to ensure that the statutory provisions of any forthcoming Financial Services Legislation, and the Terms of Reference of any Regulatory Authority that would follow from such Legislation, would not pose a threat to this, fraudulently acquired, personal wealth.
The Self-Interest priorities within this New Imperative were:
From a Retrospective Viewpoint: ── Ensure that, with respect to all past conduct, there would be no redress or retribution following from the pervasive fraudulent misrepresentations by which those within the Financial Services Sector had enriched themselves over many preceding years at the expense of customers / clients / consumers.
From a Prospective Viewpoint: ── Ensure that, with respect to any future conduct, the burden of any redress or retribution following from fraudulent misrepresentations by those within the Financial Services Sector would fall on the Financial Services Institution itself and not on those persons within the Institution who had perpetrated such misrepresentations (in other words ── ensure that, going forward, the shareholder would continue to bear the burden of the fraud by which the perpetrator had sought to profit).
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FIVE MAIN OBJECTIVES of the New Imperative
To realise this New Imperative, the Financial Services Industry lobby had to activate all its 'tentacles of influence' on the Legislative decision makers within the Irish legislature to ENSURE success with five main objectives:
| (1) |
ENSURE that, for those engaged in Financial Services activities in Ireland, no conduct would ever be categorised as fraudulent misrepresentation. This would be achieved by: (a) ── ensuring that there would continue to be no specific provisions within Irish Financial Services Statutory Legislation that could be interpreted as giving effect to a definition of conduct that would or could constitute fraud or fraudulent misrepresentation by a Financial Services Institution or its personnel, (b) ── ensuring that there would be no new Regulatory provisions, whether following from existing Financial Services Legislation or from proposed Financial Services Legislation, that could be interpreted as classifying any conduct by a Financial Services Institution or its personnel as constituting fraud or fraudulent misrepresentation, (c) ── ensuring that a specific provision or provisions would be set down within any new Regulations, describing conduct, that would or could constitute fraud or fraudulent misrepresentation in Common Law or Criminal Law, and classifying such conduct as merely being a breach of those Regulations.
The benefits of such whitewash of fraudulent misrepresentation for those in the Financial Services Sector would be threefold: (i) ── there would be no criminal consequences, (ii) ── the 'postponement of the limitation period' provisions of the Statute of Limitations (see above) would be excluded from consideration, (iii) ── if discovered by the victim within the 6 year time limit, there would be no personal financial consequences for the perpetrator of the fraudulent misrepresentation, as the Financial Institution concerned would more plausibly be deemed wholly responsible for the damages, either for a breach of Code of Conduct Rules or following from the lessor tort of negligence.
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| (2) |
ENSURE that the full extent of the provisions within the Irish Statute of Limitations with respect to the postponement of the limitation period in the case of fraud, concealment or mistake (as cited above, and more fully set out in Section 2.9), would not translate into any to-similar-effect postponement of the 'time limit' provisions within proposed Financial Services Legislation and Regulation. It was of paramount importance to those within the Financial Services Industry that there be no mention whatsoever of fraud or concealment within any proposed Legislation or Regulation provisions; they had to ensure that there would be no means of postponement of the 6 year limitation period.
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| (3) |
ENSURE that any proposed Financial Services Legislation and Regulation would not be given statutory effect for at least another six years, thereby ensuring that the fraudulent misrepresentations (now whitewashed to something to which the 'postponement of the limitation period' provisions of the Statute of Limitations could not be applied) would be time-barred (being beyond the 6 year retrospective remit of the new Legislation and Regulations).
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| (4) |
ENSURE that ──── even with fraudulent misrepresentation whitewashed to ensure no criminal consequences for the perpetrators of such fraud, ──── even having ensured that there would be no means of postponement of the 6 year limitation period for the victims of such fraud, ──── and even having ensured that any proposed Financial Services Legislation and Regulation would not be given statutory effect for at least six years ──── a further FAILSAFE, to protect those within the Financial Services Sector from criminal prosecution, would be enshrined into any proposed Financial Services Legislation. In other words ── ENSURE that, going forward, the 'Higher Order', ABOVE THE LAW, status of those in power within Irish Financial Services Institutions remained sacrosanct.
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| (5) |
ENSURE that, ultimately, the prospect of any enquiry, by conscientious interfering politicians, would be nipped in the bud. Those in Power within the Financial Services Sector needed to ensure that questioning politicians would be neutralised by vehement assurances from the Regulatory Authorities that, while in the U.K things had gotten out of hand, with the 'Mis-Selling' of Financial Services products widespread within the U.K. Financial Services Industry, there was no evidence of such pervasive misconduct within the Irish Financial Services Sector. The gravity imparted by such vehement assurances by those in Authority would set up ENDGAME in favour of those in the Financial Services Sector. |
And the stark reality, that shows the cancerous extent of the 'tentacles of influence' of Those in Power within the Irish Financial Services Sector on those within the Irish Legislature, (i.e. on those within the Irish Legislature who, ultimately, moulded the content and directed the course of Irish Financial Services Legislation and Regulation), and on those within the Central Bank / Regulatory Authority, is that:
They would succeed in their New Imperative on all five counts.
(These contrivances of Legislation and Regulation will become evident throughout the following Sections:Section 2.6.7, A Stitch-Up in Time, Section 2.6.8, Some Men are More Equal than Others, and Section 2.6.9, From Whitewash to Quicklime ─ Pro-Active Concealment.
Malpractice Exposed within Irish Financial Services Institutions
An independent Financial Services Authority should be established immediately
In March 1998, the Joint Committee on Finance and the Public Service became aware, through allegations made in media reports, of malpractice within Irish Financial Services Institutions.
Certain sectors within commercial banking had adopted a policy of increasing or loading rates of interest on targeted customers holding overdrafts or loans, without actually informing those customers that any change in the terms had taken place. There were also allegations in relation to possible tax evasion where banks had facilitated the use of off-shore bank accounts.
As a consequence, the Joint Committee carried out a review of Banking Policy in Ireland, hearing the evidence from those in positions of authority within the relevant State Institutions (these included the Secretary General of the Department of Finance and the Governor of the Central Bank) and from representatives of the Irish Bankers’ Federation (IBF).
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On 21st July 1998, the Joint Committee issued its ‘Report on Review of Banking Policy’.
The Committee concluded that the inability of the Central Bank of Ireland to prevent such malpractices against customers / consumers was due in part to the fact that the Central Bank saw its role in an overall macro sense ── concerned about overall financial stability in Ireland rather than individual consumer protection.
The Committee also concluded that the self-regulatory role of the Irish Bankers’ Federation (IBF), made up entirely of members of the banks themselves, meant that it was virtually impossible for the IBF to adopt a proactive or critical role in relation to the pursuit of malpractice or suspected wrongdoing among its members.
The Committee recommended that an independent Financial Services Authority should be established immediately in Ireland to regulate and supervise all Financial Services Institutions and their activities.
CHECK ! ──── The Irish Timeline
(July 1998)
IMMEDIATELY ?
REMEMBER that it was now July 1988 andthat the U.K. Financial Services Authority (FSA) had been established as the Single Regulatory Authority for the supervision of the Financial Services Industry in the U.K. since October 1997.
REMEMBER ALSO that the U.K. Financial Services Authority (FSA) had, by the end of 1997, concluded its review of the Personal Pensions Scandal, where 'so called' financial advisers (motivated by the prospect of commission) advised millions of U.K. consumers who were members of occupational pension schemes to transfer their funds into personal pensions.
AND there were plenty more 'so called' Scandals within the Financial Services Industry in the U.K. that were being continually highlighted by U.K. financial services journalists and that were not going to go away.
SO, the last thing those within the Financial Services Industry in Ireland wanted was anything even approachingimmediacy with respect to the establishment of an independent Financial Services Authority to regulate its activities. (See the 'FIVE MAIN OBJECTIVES of the New Imperative' above.)