5th July 2012

Longstop and enforcing the law

Do you remember the story of Deborah Hunt? She is the (now former) financial adviser who last July drove the wrong way up the M5 without insurance but with twice the legal maximum level of alcohol in her blood. 

She ended up behind bars for her little soiree.  Imagine what would have happened, though, if she had told the court that the Financial Services and Markets Act does not specify which side of the motorway she had to drive on. Nor does it impose a limit on how much alcohol she could have and still drive – and she only had to have professional indemnity cover, not third party motor insurance.

Clearly, if Parliament had intended financial advisers to only drive on the left hand side of a motorway, to do so whilst sober and to be properly insured whilst driving, it would have made it quite clear in FSMA. 

But the reasoning is obviously ludicrous.  FSMA, and any other new law for that matter does not reassert all other legislation currently in force. Instead, all existing legislation remains in place unaltered unless the new Act specifically amends it. 

FSMA takes this approach. It repeals part or all of no less than 13 Acts. Alas for Ms Hunt, none of them relates to her offences but my point is that even in her intoxicated state, I suspect she was sufficiently compus mentis to appreciate that such a defence relied on the logic of an idiot.

Enter the Financial Services Authority and the Financial Ombudsman Service. They say that because the 15 year Long Stop described in Section 14B of the Limitation Act 1980 is not referred to in FSMA, it obviously does not apply to firms over whom they have jurisdiction, arguing that if Parliament had wanted it to apply then it would have discussed the matter and thus rely on the perverse logic that Ms Hunt was not foolish enough to attempt to use. 

But despite being a silly argument, it turns out that Parliament DID consider the issue of the Long Stop and the regulation of financial services at the same time. The Queen's speech in 1986 refers to two particular Acts. 

Of the first she says it “will protect the interest of investors”. This is the original Financial Services Act. 

Referring to the second, she says “Legislation has been passed for England and Wales to set fair time limits for cases involving latent damage”. This is the Latent Damage Act, which inserted Section 14B into the Limitation Act 1980.

So it turns out that the assertions of FOS and the FSA are unclear, unfair and misleading. They know, or should know, that Parliament had already considered the matter but apparently chose to ignore its decision, and the words of Her Majesty, that were inconvenient to their agenda.

This reminds me of the Witch in the prequel to the Lion The Witch and the Wardrobe when she claimed to be too important to bound by the Law of “mere mortals”.

Remember Walter Merricks' boast that FOS was “unashamedly making law”? It is not there to make law. It is there to fairly administer justice – and the Law says that justice cannot be fairly administered in respect of a negligent act that may, or may not, have occurred more than fifteen years ago.

The FSA can, of course make rules which have the force of Law.  So can your local council or water company – but a bylaw cannot override national law.  If the national government imposes a limit then no bylaw  can increase it. Your local Highways Authority can impose a lower speed limit on a road but it cannot make it higher than 70 mph for a dual carriageway or 60 mph for a single one because those are the national limits.

So it should be with the FSA or any other regulator. It must operate under the Law not above it.

If it had concentrated on enforcing the Law as it stands rather than trying to make Law on the hoof perhaps it would have spotted that LIBOR was being fraudulently rigged and that the cost of fraudulent complaints about events that occurred twenty years ago will ultimately be borne by the consumers it says it seeks to protect.

Peter Turner

Dispusolve and The Compliance Cooperative

Regulation, Panacea Comment