Midas Financial Solutions Collapse

Alistair Carmichael Excerpts

Tuesday 22nd March 2022 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I beg to move,

That this House has considered the matter of the people affected by the Midas Financial Solutions collapse.

It is a pleasure, as ever, to serve with you in the Chair, Mr Stringer, and I am grateful to the Backbench Business Committee for allowing time to bring the matter before the House. I do so for a number of reasons, some to do with the people directly affected by the collapse of Midas Financial Solutions, but also because the case brings to us bigger issues that require attention and, potentially at some point, reform.

Another reason for bringing the matter to the House is that I know from my constituency casework that, bad though the situation around Midas Financial Solutions is, it is far from the only case. I have another such constituency case, although I will not refer to it as criminal proceedings are still live and it would therefore be improper to do so. However, the position of those investors in Midas Financial Solutions Ltd who took the legal action against Sense, the principal of Midas Financial Solutions, remains highly unsatisfactory.

Related to that position, it appears to me that the workings of the Financial Conduct Authority, and before it the Financial Services Authority, require close parliamentary scrutiny, particularly the inability to focus on the needs of the consumer, rather than the various other professional parties that come within its ambit. It is worth reflecting that, in this case—which forced the FSA to act in 2014, although it had been aware of much of it beforehand—it took until 2020 and court action by 95 of the investors for the FCA to apologise in writing. That illustrates the obstruction that seems to lie at the heart of much of the complaint handling by the FCA.

Finally, there are issues around the future pattern and shape of regulation. The law as it stands leaves us, effectively, with two tiers of protection, and I suggest that that requires to be addressed.

Today’s debate is the latest junction in a road that has represented six years of casework for me. I have been consulted with, worked with constituents who have lost tens of thousands of pounds—some have lost hundreds of thousands of pounds—and engaged with people throughout the north-east of Scotland, as well as Orkney and Shetland, as Midas Financial Services Ltd was based in Aberdeen. The managing director was Alistair Greig, who was convicted of fraud involving £13,281,671.25. For his role in the fraud, he was sentenced to 14 years’ imprisonment, which was reduced on appeal to 10 years. The fraud ran from August 2001 to October 2014.

The pretence at the heart of the fraud—that money was being placed in short-term deposit schemes with Royal Bank of Scotland for fixed periods—was essentially fairly simple, but this turned out to be, bluntly, a Ponzi scheme. We are not focusing on RBS today, but I will mention in passing that one of my constituents rather dryly observed that throughout the scheme RBS had demonstrated a quite remarkable lack of curiosity. The prosecutor at the trial said that Greig had used the funds from Midas Financial Solutions (Scotland) Ltd

“as his own personal slush fund.”

My constituents would prefer not to be named, as Shetland is a small community and it is not difficult to work out who has lost sums of this sort. I have worked closely with the group that organised and corralled the 95 investors to raise legal proceedings, and I pay tribute not just to my constituents, who have been dogged in their pursuit of the action, but also Colin Stewart, who was one of the main actors in bringing the group together.

We have to bear in mind that the sums involved are massive—tens or hundreds of thousands of pounds—and represent life savings or perhaps an inheritance. These are not investment bankers in the City of London who are just taking a bit of punt with last year’s bonus. These are massive amounts of money to the people involved, and it is money that none of the people to whom I have spoken could afford to lose. One of my constituents remains £80,000 out of pocket to this day.

I pay handsome tribute to some of the legal practitioners involved. Robert Morfee was the solicitor when I first became involved, and more recently it has been Philippa Hann, who has prosecuted the case for her clients in a way that reflects very well on the best traditions of the legal profession. My constituents have been very fortunate to have her on their side.

Alistair Greig operated as an appointed representative, which is a term of art, of Sense Network Ltd, a network of financial advisers. As I said earlier, this was actually a Ponzi scheme operated by Alistair Greig. The true nature of the scheme was eventually exposed by a whistleblowing notice in August 2014, leading to enforcement action against Midas and Mr Greig by the Financial Conduct Authority in September 2014. That investigation revealed that 279 members of the public had contributed £12.8 million to the scheme, but that only £379,000 remained at that point.

Proceedings were taken by 95 claimants against Sense as the principal and supervisor of Midas. They were unsuccessful both at first instance and on appeal, on the basis that it was held that the obligations of Sense for its appointed representative were strictly limited to the exact terms set out in the appointed representative agreement between them, which included which product providers Midas could use. Where Midas used a different product provider, that was held to fall outside the responsibility of Sense, despite the fact that the claimants were not made aware of that nor could they have discovered it from any publicly available source.

I want to labour this point for a second, because it is material. The FCA, and before it the FSA, made it clear in everything it ever said to members of the public that they should check the status of the people with whom they were doing business—there are online registers available for ready inspection. However, the truth of the matter is that whether or not the actions of the appointed representative are covered, as they should be by having a principal such as Sense Ltd, is something that someone coming in off the street to invest their money cannot know. Indeed, that ran to the very heart of the difficulties faced by those who invested with Midas Financial Services.

It was also disclosed in the course of the court proceedings that there were good reasons for Sense, the Financial Services Authority and the Financial Conduct Authority to know that Alistair Greig was dishonest and was not fit and proper to be registered and authorised by them. In fact, it was revealed that the Yorkshire Building Society had found him to be selling mortgages under false pretences. The management of Sense Network was aware of that but allowed Mr Greig and his firm to continue as an appointed representative of Sense Network.

The effect of the court’s decision was to create a two-tier system of protection for UK investors. The court upheld that the private contract between the principal and the appointed representative, not the publicly available information on the FCA register, defines the business for which the principal is responsible. Even though the customer would not know what the arrangement is between the principal and the AR, that arrangement will govern the acts for which the principal is responsible. As a result, the customer will be in the dark and potentially at risk—more so than if they had done business with the principal directly. Where the advisor is not an appointed representative but is directly authorised by the FCA, the consumer will be protected in relation to the business that it is permitted to undertake and which is listed in the publicly available register. If Midas had been directly authorised, the claimants would have been protected.

The judgment is relevant to any appointed representative acting outside its private agreement with its principal. The fact that the investment in this case was a Ponzi scheme is irrelevant to the decision that the judge made and the consequences for the general public. Any client of an appointed representative advised in relation to anything that falls outwith the agreement with the principal will leave the client without protection entirely, without their knowledge. In the Midas case, obviously the staff at Midas did not inform the claimants that the advice fell outside the agreement with their principal. One wonders whether they would have even understood the significance of it had they done so. The judgment now leaves consumers at the mercy of unscrupulous ARs acting in breach of their private agreement with their principal, for which the principal avoids liability despite the law providing for it to seek damages from the AR for breach of that contract. The principal can take action against the appointed representative, but the customer—the consumer—cannot.

As well as taking the court action, the claimants took a complaint to the FCA about the failure of its predecessor, the Financial Services Authority, to take steps to prevent Mr Greig from operating in the financial services sector. The process for authorisation requires a test to ensure that those accessing the public are fit and proper individuals. The test requires honesty, competence and capability, together with financial soundness. The regulator had three opportunities to identify Mr Greig as dishonest and to remove him from the industry before he was able to defraud it. The regulator did not uphold the complaints in respect of the first two opportunities, but it did expect that it should have taken further steps.

The judgment of the complaints commissioner overseeing the work of the FCA, which was published on 27 May 2020, is significant, and I want to draw the House’s attention to two parts of it. The first relates to section 348 of the Financial Services and Markets Act 2000, which details the policy on sharing information. The commissioner states:

“I have queried the FCA’s position on this, and it has explained that, while the general criteria by which decisions were and are made are not covered by s348, explaining how they were applied to a particular case is likely to involve breaching s348 because it may disclose confidential information received by the FCA.”

The protection in section 348 is all about protection for the FCA and those who are authorised, not protection for consumers. That is what I suggest requires some attention. The commissioner concluded:

“The view of section 348 is problematic, because it makes it hard to understand why the regulator has made decisions, and can lead to an erosion in public confidence. In your”—

that is, the claimants’—

“response to my preliminary report, you argued that you ought to be able to see any unpublished policies applying at the time in order to be able to respond. I have considerable sympathy with your point of view, but the fact is that for regulatory reasons the FCA considers that detailed policies of this kind should not be published. I invite the FCA to consider whether it might be more open about the historic policies of the FSA, but that is as far as I can go.”

As far as I am aware, it has never made any such explanation.

In relation to the information provided by the Yorkshire Building Society, the commissioner is blunt:

“I recognise that you—and many others—might be surprised to learn that the FSA considered that reports suggesting mortgage fraud should not necessarily be followed up. I was surprised when I learned this. The fact that a major building society felt it necessary to remove advisers from its panels because of concerns about their integrity might be seen as a good reason for the regulator to make significant further inquiries.”

That was information that went to the FSA in 2008. It did not act then, and did not act when further information was given to it in 2012. As a consequence, the activities of Alistair Greig were allowed to continue unchecked for at least six years. When Greig’s activities were eventually exposed, legal action was taken. Although the complainants were unsuccessful, it was held that there was eligibility as—I have lost the term of art; as a collective investment scheme, which would open the door to compensation under the Financial Services Compensation Scheme.

Most of those who suffered loss as a consequence of the activities of Alistair Greig were able to avail themselves of that, and many have been compensated in full. The fact is, however, that that route only came to light as a consequence of the legal proceedings that were taken by Colin Stewart and the 94 other investors. They would never have been able to make that claim to the FSCS, but for the fact that they took the court case, even though that was ultimately unsuccessful. The 95 are still out of pocket to a collective tune of £2 million in legal fees. My constituent has been left with an £80,000 shortfall for the money he invested. It seems wrong to me that, even where the FCA is entitled to make ex gratia payments, for fairly opaque reasons in this case, it has refused to do so. I call on the FCA, and hope the Minister will also use his office to impress on it the unsatisfactory nature of that.

Quite apart from the legalities, if the FCA acted so badly and inadequately that it had to issue a letter of apology in June 2020 to the people who had invested, but will not do anything to make good the losses sustained by my constituents and others in exposing conduct, which the FCA should have exposed, something has gone badly wrong. It is in that sense that the House should now have an interest.

It is clear to me from my dealings with Midas and other cases that the regulation of the financial services sector is enormously complex—far too complex for people entering the sector in good faith, with no experience or understanding of how it works—and it is not consumer-friendly. It is focused on protecting those charged with its regulation and the bodies that are regulated, rather than the consumers, who will ultimately be left out of pocket when it all goes wrong. That is what has happened with Midas Financial Solutions, and that is something that the Government now need to consider with some urgency.

We have spoken elsewhere in the House about the attitude that fraud is somehow a victimless crime—it is not as direct as housebreaking or crimes of violence. My constituents who are tens of thousands of pounds of their savings and hard-earned cash out of pocket would not agree with the assessment that fraud is a victimless crime. We pay the Financial Conduct Authority a lot to regulate, and we deserve better.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

Just to clarify, the right hon. Gentleman said that the legal costs were nearly £2 million, whereas the figure I found was £1.5 million. Is he contesting the official figure or does he have further information?

[Mr Carmichael]

I was given the figure by my constituents—of course, it was a collective action. Even if it was £1.5 million, it is still chunky money in terms of being left out of pocket and it still hits particularly hard. There is the financial and also the emotional cost to those who had to take the action to make the FCA do its job.

[Tulip Siddiq]

I absolutely agree with the right hon. Gentleman: it is a chunky figure, regardless of whether it is £1.5 million or £2 million. I just wanted to clarify whether he had additional information that I had not received. I thank him for his answer.

[Mr Carmichael]

I have struggled this morning to resist the temptation to be drawn down into the weeds. I have had six years of dealing with this matter. The complexities, technicalities and minutiae are incredibly involved. I have learned more about the regulation of financial services than I would have believed possible or desirable, but the message for the House is fairly clear: the system is not working. It has left my constituents and others significantly out of pocket. But for the fact that they were prepared to take legal action, every one of the 279 investors would have been out of pocket. For that reason, the system requires further scrutiny by the Department.

Mr Stringer, I have taken rather longer than I intended. I await the Minister’s reply with interest.

[Jim Shannon (Strangford) (DUP)]

Thank you, Mr Stringer, for allowing me to speak on this issue. I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on bringing it forward. As always, he set the scene very well for his constituents, who have lost out, and he was passionate in asking for answers to the questions he put forward. It is pleasing to see the Minister in his place. He always comes with a positive attitude to these issues. He understands them well and we look forward to his response. Hopefully, he can address some of the issues we have.

It is also a pleasure to see the shadow Minister, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), in her place. Like others, I want to put on record my thanks to her for her hard work and endeavours to bring home her constituent, Nazanin Zaghari-Ratcliffe, and others. That campaign has been marvellous. We all admire the hon. Lady very much, and we see her perseverance. If she is adding her weight to this debate, I am sure that will be enough to push it over the line— no pressure on the Minister. Again, I thank her so much.

The case of Midas Financial Solutions is disturbing to the extreme. My heart goes out to all those hard-working people who trusted a financial adviser and have lost their money. That was very well illustrated by the right hon. Member for Orkney and Shetland. From a 22-year-old to two people who have died, there appear to be almost 200 victims. Some of them lost a few thousand, but that was all they had. Those people invested thinking that it would make their money last for their old age. Unfortunately, it did not. Others lost almost £500,000. I have a number of questions for the Minister, but one is whether the families of those who died get compensation?

The sheer scale of the Ponzi scheme is mind-boggling, yet the shortcomings and the evidential base are well documented. People are out of pocket. In debates on other issues, the Minister has tried hard to respond, but we need to ensure that the investors who are most out of pocket—I think 95 is the final figure—can be reimbursed. What can be done to ensure that lessons are learned from what we are bringing to the attention of the Minister and the Government?

When I read the background to the case, one thing became glaringly obvious: the FCA managed to wash its hands of the entire scheme until a judge in the civil case underlined the fact that this was truly an investment scheme and therefore should be accepted into the Financial Services Compensation Scheme. Why did it take a civil case to bring this within the FCA scheme remit? What steps do we need to take to ensure that this does not happen to anyone else and that people can access the scheme, which is designed to help, without having to fund a civil case? It is not always possible for ordinary folk who have already lost the bulk or all of their moneys to pursue a legal case. They must feel frustration; they look to the Government and the system to protect them and to ensure that their investments are okay, ever mindful that there are some in this world who would take advantage of people trying to build something for their future.

My next point runs on from that. It is grossly unfair that those 95 people must pay from their limited recoup to cover legal fees of £1.5 million—or perhaps £2 million, as the right hon. Gentleman said.

[Mr Carmichael]

I can actually give the hon. Gentleman the figure now: it is £1,903,619.92.

[Jim Shannon]

There we have it. The hon. Member for Hampstead and Kilburn and I now know that the figure is £1.9-odd million in legal fees. They will pay that out of the same amount as those who did not pay into the court case will receive. We can understand the frustration of those who paid for these things to be chased up, given that others have the advantage of not having paid. There is an anomaly. Some lost out, but the legal fees then follow. Surely, the public purse should have paid, rather than people who have already lost every penny of their savings.

The head of a regulated company unscrupulously and fraudulently stole millions of pounds to furnish his lavish lifestyle. His own wife has been instrumental in helping the victims, and that is one of the good things that has come out of this, but her husband stole from his customers. Why has the body set up specifically to look into these things been so behind the door in fulfilling its role? How can we ensure that this loophole is removed so that people have full help and assistance in future? There are lessons to be learned that we can use for the future. We need to ensure that people who invest in these pension schemes do not find themselves out of pocket when the time comes.

The background article I read in The Courier highlighted the fact that the warning signals regarding this man were ignored or overlooked by the FCA. If they had not been, that may have prevented more people from being duped. What is being done to prevent these things from ever being overlooked again? People want the assurance and the confidence when they invest that the company they are dealing with is safe and secure. What has been learned by the Government and the Minister? What legal measures will be put in place to ensure this does not happen again?

I conclude by thanking the right hon. Member for Orkney and Shetland for bringing the debate forward. It is important that these issues are debated in Westminster Hall or the main Chamber. The right hon. Gentleman has been involved in these issues on behalf of others in the past, and we have spoken in many debates together. Our job is always to illustrate examples where, unfortunately, things have gone wrong, but I respectfully say to the Minister that his job and that of the Government is to ensure that these things do not happen again.

Through the debate, we are seeking not only to get justice for the right hon. Gentleman’s constituents and hundreds of others who have lost out, but to ensure the Government close the gaps in support for victims and in the regulation of the system. What has been done legislatively to ensure this does not happen again? This failing has ruined the lives of hundreds of people, when it could have been prevented. It is turning some people’s comfortable retirement into purgatory, and we must address that now.

--- Later in debate ---

[The Economic Secretary to the Treasury (John Glen)]

It is a privilege to serve under your chairmanship, Mr Stringer, and I join others in congratulating the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing today’s debate.

Before I get into the matter at hand, I want to acknowledge the role that my opposite number, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), has played over the past six years in championing the case of her constituent, Nazanin Zaghari-Ratcliffe. We all have constituents in need, but the hon. Lady’s consistent advocacy has been very effective, and I want to pay tribute to her publicly.

In acknowledging that this is an extremely challenging case, which has caused great misery to many investors who were misled, I recognise, too, the broader context of a financial services sector that is a great success in this country. However, the debate and the points made in it have raised a number of issues that I want to respond to specifically. If hon. Members are patient, I will get into the mechanics of the authorised representative regime, how it is working and what lessons we learn from this.

Fraud is a crime that damages trust between individuals and across society—I would say it casts a shadow across the economy—and tackling it is a priority for the Government. Our efforts are focused on reducing vulnerabilities, catching the criminals responsible and supporting the victims of these despicable crimes. As the hon. Member for Strangford (Jim Shannon) said in his welcome remarks, those crimes cause considerable distress to individuals and have a catastrophic effect on families and communities.

We are working closely with industry regulators and consumer groups to consider additional legislative and non-legislative solutions. I will say more about that in a moment, but first I will set out the Government’s position on this specific case. As hon. Members no doubt appreciate, there are limits to what I can say, but Mr Alistair Greig perpetrated a large-scale fraud over several years, much of it accurately depicted by Members this morning. He lied to those who trusted him with their pensions and life savings, and caused enormous suffering.

Midas was founded by Mr Greig in 2006 and it carried on a financial advisory business based in Aberdeen. In 2007, it became an appointed representative of a firm called Sense Network Ltd, and the Treasury understands that much of its business was mortgage advice. Mr Greig used his senior position in the firm and its relationship with Sense to convince his clients that he was investing their hard-earned money in high street accounts with RBS.

I want to pick up the point made in passing by the right hon. Member for Orkney and Shetland on the culpability of RBS. In all these tragic cases, it is incumbent on all parties to examine their processes. I think the right hon. Gentleman mentioned that RBS had—

[Mr Carmichael]

A lack of curiosity.

[John Glen]

A lack of curiosity. I cannot know whether that is the case, but I say as a Minister that it is important that every business reflects on its responsibilities in cases of this sort.

Clearly, what Mr Greig said about where he was putting that money proved not to be the case. Instead, he was operating what we can all acknowledge was a Ponzi scheme. It went well beyond the scope of Midas’s appointed representative arrangement with Sense, the principal firm, and accepted deposits without proper authorisation. Instead of investing on behalf of clients who had trusted him with their savings, he transferred the money to his personal account and used it to fund the lavish lifestyle that has been spoken about this morning. His fraudulent activities were halted only when the Financial Conduct Authority intervened in 2014, following contact with a concerned investor. When the FCA became involved, the scheme included 279 members of the public, whose investments have not been repaid. They had paid £12.8 million and were owed a total of £13.6 million. Following the conclusion of a legal case involving some of the investors and Sense, the Financial Services Compensation Scheme declared Midas to be in default, following which the scheme was able to start accepting claims from investors and begin paying compensation to eligible claimants.

Although I am pleased that the scheme was uncovered and stopped by the FCA and that the FSCS has been able to compensate for a significant proportion of what was lost, I recognise that the scheme will have caused great pain to those involved, and I condemn unreservedly the actions of the man responsible. In seeking to understand the case, it is worth while for me to unpack the appointed representatives regime, which has been mentioned by the right hon. Member for Orkney and Shetland and others. It is the key policy area that is thrown into focus by this case.

As Members will know, under the UK’s regulatory approach to financial services, a firm must be authorised by either the FCA or the Prudential Regulation Authority in order to carry out a regulated activity. Authorised firms can also appoint other firms to act as appointed representatives for certain regulated activities, but it is worth noting that deposit taking, which Mr Greig was carrying out, is not an activity allowed under the regime, and I will say more about that in a while. In such relationships, the authorised principal firm must ensure that its appointed representatives are complying with all relevant regulatory requirements set out by the FCA. Mr Greig was a director of Midas Financial Solutions, which was a firm that was permitted to carry out the regulated activity of providing investment advice because it was an appointed representative of Sense Network, a financial advice firm that is authorised directly by the FCA.

The FCA’s investigation found that Mr Greig deliberately concealed his fraudulent operation from Sense Network, the firm that had regulatory responsibility for Midas. Unfortunately, all firms—whether directly authorised or appointed representatives—can be susceptible to individuals deliberately acting in a fraudulent manner, which is what happened. It was a shocking case of fraud. Greig was operating a scheme for which his firm was not authorised, and he hid the scheme from Sense Network.

[Mr Carmichael]

I have a question that I hope the Minister will answer in the next sentence or two. How would any individual investor know the extent of the authorisation and the relationship between the principal and the AR? This does not conform to any other aspect of the law of agency.

[John Glen]

I hope I am coming to that point. The right hon. Gentleman addresses the core point, which is about the comfort that the appointed representative regime provides to the consumer, and the Treasury and FCA are taking steps to ensure that use of the appointed representative regime is not open to abuse.

The relationship between a principal firm and the appointed representatives, including what regulated activities it covers, should be available to the public. That is now a regulatory requirement, and the FCA is taking steps to improve the information that is available to the public by clarifying what the appointed representative firm is authorised by the principal—in this case, Sense—to undertake and what it is therefore not authorised to undertake. That will give consumers clarity on what activities they can legitimately discuss with the appointed representative firm and ensure that they know there is regulatory oversight.

As we know, Sense was not found to be at fault in its role as a principal, as Mr Greig was acting outside the Sense-Midas agreement. The right hon. Member for Orkney and Shetland has spoken about the role of the principal, and the hon. Member for Hampstead and Kilburn asked what the Treasury is doing about this issue, following the Select Committee report last summer. We are undertaking a review of the appointed representative regime and examining how consumers are protected when dealing with an appointed representative and not directly with the authorised firm.

On 3 December, we published a call for evidence on the regime as a whole. At the same time, the FCA published a consultation paper on proposals that will strengthen the oversight that principals have over their appointed representatives, or ARs, and the information available to consumers on the FCA register when dealing with these firms. That call for evidence is essentially gathering information from interested parties and it closed a few weeks ago on 3 March. The Treasury and the FCA are working together to consider the responses, and to set out the next steps in due course and as urgently as we can.

I will also speak a little bit about the role of the FCA, which, as the House will be aware, is an independent regulator, and of the Financial Services Compensation Scheme. The FCA took steps to investigate Midas and Alistair Greig in relation to the activity of accepting deposits without the necessary authorisation and subsequently referred the matter to the police, who launched a successful criminal investigation. The FCA took civil action to stop the activity and obtain compensation for victims, securing agreements to repay over £1.3 million in October 2015. As a result of the proceedings, the FCA recovered approximately £380,000, which has been distributed to victims. Mr Greig was charged by Police Scotland and sentenced to 14 years in jail in April 2020 for fraud.

Although the FCA took action and the subsequent police action led to Mr Greig being prosecuted and sent to prison, I acknowledge the point made in the complaints commissioner’s report that the Financial Services Authority, which was the predecessor to the FCA, should have taken more action, more swiftly and more effectively. It is right, therefore, that the FCA, the successor organisation to the FSA, apologised for that.

Let me just say something about the Financial Services Compensation Scheme, which is the UK’s compensation scheme of last resort. It pays compensation to consumers when authorised financial firms fail and a relevant regulated activity has been undertaken. The FSCS carries out its compensation function within the rules set by the FCA and the PRA. The FSCS first became aware of claims against Midas in December 2019, when lawyers representing claimants approached the FSCS, and it declared the default in March 2020. By August 2020—so, just a few months later—it had processed 197 claims and paid out £9.6 million in compensation.

In order to aid investors claiming compensation, the FSCS, using data collected by the FCA, was able to pay compensation to 175 investors without those investors actually needing to make a claim. It also ran a media campaign targeting the Aberdeen area to ensure that all investors were aware that they could claim compensation from the FSCS, recognising the sensitivity with respect to named constituents that the right hon. Member for Orkney and Shetland mentioned.

On that note, I will take this opportunity to say that the FSCS is still accepting claims against Midas, so I encourage anyone who thinks that they may be eligible to get in touch with the FSCS. Some Midas investors brought a claim against Sense as Midas’s principal, which is the point the right hon. Member made, and I understand that some of those investors are disappointed that the compensation they received from the FSCS did not cover their legal costs.

As set out in the FCA’s rules, the FSCS covers losses suffered by a customer caused by the firm in connection with its regulated activities. It does not, however, extend to covering legal costs in pursuing a regulated firm, especially where the firm is not even a party to those legal proceedings.

[Mr Carmichael]

I am grateful to the Minister for giving way; I see that he is on the last sheet of his speech and I think that we are coming to the very heart of the matter here.

Access to the FSCS was only an option because of the action taken by the 95 against Sense. Quite apart from that, the FCA has a power to pay ex gratia payments. It has not done so, even though it has apologised for the shortcomings in the actions of the FSA. This point was considered by the Commissioner, who declined to order an ex gratia payment, drawing a parallel with damages and saying it would

“clearly undermine Parliament’s intention to provide the regulator with some protection”.

What is more important to the Government here? Is it providing the regulator with protection or the consumers with protection?

[John Glen]

The Government work closely with the FCA. As I have said, we are taking very seriously the implications of this case and the relationship between the principal and the appointed representative, as well as the apparent lack of clarity over what consumers know to be covered by that delegated authority of the principal to the appointed representative. The right hon. Gentleman is referring to the relationship between two entities: the FSA and the FCA. The FCA acknowledges the FSA’s prior failings to do the job as it should have. The right hon. Gentleman is asking me to comment on the eligibility of the victims to access the FCA compensation scheme, which is clearly something that is governed by its protocols. I hope we can learn from this very sad case that, going forward, we will bring more clarity to the appointed representative regime and more clarity to consumers. Of course, consumer care is important.

However, we also have to recognise that the FCA is responsible for around 51,000 authorised firms. Of course, the role of some of those authorised firms in acting as sponsors for appointed representatives needs examination: as I have set out, the Treasury and the FCA are undertaking that. It would be pretty impossible for every appointed representative to undergo the same sort of supervision as an authorised firm—that would expand the scale of the FCA’s responsibilities. We have to make sure that authorised firms’ responsibilities to their appointed representatives are more effective.

I think that I have expressed with clarity that this has been an extremely challenging case for everyone involved. I acknowledge unequivocally that Mr Greig’s fraudulent scheme will have caused great misery to the investors he misled, and it is absolutely right that he was brought to justice. I am pleased that so many of those who made losses have been compensated by the FSCS, and I hope they can now put it behind them.

The Government are not complacent about this. I have gone into some detail about the lessons that we need to learn. We will work alongside other financial authorities to counter fraud and ensure that cases such as these are prevented wherever possible and that, where they do occur, they are dealt with appropriately.

It will always be the case that the Government will need to work with regulators to create an environment that protects consumers while allowing firms to operate. What we have to do—and, since the new chief executive came in about 17 months ago, work has been going on urgently at the FCA to do this—is to undertake a transformation programme to allow the FCA to examine risks across the authorised firms and act more effectively than its predecessor organisation, the FSA, did in this particular case. I hope that is helpful to the House this morning.

[Mr Carmichael]

It is more than 20 years since I left legal practice, no doubt to the relief of many. The further I get from it, the clearer it becomes that we should never confuse law with justice. It seems that we have exposed some fairly fundamental points here today. The system of regulation has been inadequate, which is why the Government now speak about changing it. The actions of the Financial Conduct Authority—the body set up by Parliament to protect consumer interests—have been woefully inadequate; that is why it has apologised. The people who have paid the cost of the inadequacy in regulation and the conduct of the body set up by Parliament are not Parliament, the Financial Conduct Authority or the taxpayer, but the constituents who were defrauded in this way.

The intention of Parliament was clearly that people should be protected from this sort of behaviour and, if they were not protected, for there to be some compensation. The Financial Compensation Authority has wriggled like worms on the end of a hook for years over this, continuing to deny any responsibility or liability. I think that is wrong, and our constituents deserve better. The limited compensation that people have received was only given because of the actions taken by the 95 claimants. It strikes me that there are very strong parallels here with the sub-postmasters and sub-postmistresses who took legal action to expose the scandal around Horizon.

At the end of the day, it is a question of not only law or justice, but the culture and the relationship between the citizen and the state. I am afraid that, as things stand, the citizens are being short-changed by the state, and that is not something with which we as parliamentarians should be satisfied.

Question put and agreed to.

Resolved,

That this House has considered the matter of the people affected by the Midas Financial Solutions collapse.