Commercial Financial Dispute Resolution Platform

Kirsten Oswald Excerpts

Thursday 15th December 2016 Commons Chamber

[Kirsten Oswald (East Renfrewshire) (SNP)]

I congratulate my hon. Friend the Member for East Lothian (George Kerevan) on securing this timely debate.

A key issue that we need to address is how we end the conveyor belt of actions by financial services companies that generate disputes. Far too often, the perpetrators seem to be left to continue as before, so if we are to address the issue, we need to improve performance right across the sector. I was pleased that the debate was sparked by comments from Andrew Bailey, the new chief executive of the FCA. I sincerely hope he will follow through on the interest he has expressed in changing how we deal with these issues.

From the cases that I have encountered, it is clear that the current ad hoc approach is not working. As we have heard eloquently expressed today, why should those who blow the whistle on wrongdoing end up losing out, not just through the actions of their peers, but through the actions, or inaction, of the regulator? From my surgeries and caseload, I am well aware of concern at the actions of RBS and other lenders. Some constituents have experience of banks tilting the balance of risk too far in their own favour. I am particularly concerned to hear of banks forcing customers to use their home to underpin commercial loans in order to avoid being pushed into administration.

I want to highlight two constituency cases of concern. The first goes to the heart of the basic service provided by the banks—safeguarding our money and paying it out only when authorised to do so. A young constituent, Calum Cheshire, has had a bank account with RBS since he was 12 years old and, as a student, he worked to build up some funds. In July 2015 he was shocked when his bank statement told him that someone had withdrawn £550 from a branch in the east of Scotland on a Saturday when he was at home in the west of Scotland. To cut a long and painful experience short, Mr Cheshire has been seriously let down. RBS disregarded the FCA-defined rules for such circumstances. Not only has it effectively accused its customer of fraud, but it has rewritten his evidence to suit its narrative.

According to the bank’s defence, it appears that the usual way to commit fraud using the bank’s branch network is to walk into a branch that one has never used, produce proof of identity that does not include a bankcard, and ask to clear one’s account—a most unlikely scenario, but one that was parroted back to Mr Cheshire by the Financial Ombudsman Service as a reason for refusing to order the return of his money. Despite vast sums spent to have the FCA write a regulatory framework and the FOS to keep financial service disputes out of the courts, Mr Cheshire is now forced to resort to the small claims court to secure the redress that has been denied him to date. I issue a challenge to RBS management—please don’t throw an expensive city lawyer at this case and price it out of Mr Cheshire’s reach.

The relevance of this case to the current debate is what it says about the quality of decision making in resolving financial services disputes. If we are to keep cases out of courts, let us, as my hon. Friend the Member for East Lothian said, abandon some of the complex rules and procedures, but let us not abandon the requirement to apply rules fairly and to use the fullest evidence.

In looking at how we resolve commercial disputes, I suggest we look very carefully at the role of the Complaints Commissioner. This office receives too little attention, despite providing an external check on the quality of decision making in dispute resolution.

I am privileged to chair the all-party group on the Connaught Income Fund. Members may recall that the collapse of that fund saw the disappearance of over £100 million subscribed by investors at an average of £70,000 a head. Many of those investors, including my constituents, were making provision for their pension, attracted by a promised long-term investment, a good rate of return and limited risk. Unfortunately, the history of regulatory failure in relation to the Connaught Fund bears many similarities to that of the RBS Global Restructuring Group. The integrity of the Connaught offer was underscored by the involvement of major companies in the financial services sector. The initial operator of the fund, part of the Capita Group, holds major contracts with central and local government across the UK, was regulated by the FSA, and is regulated today by the FCA.

The Connaught fund collapsed in 2012. Yet, nearly five years later, investors still wait to hear what really happened to their cash. Who walked away with it? Why were they allowed to do so? When we follow a trail set for us by one of the largest companies in the UK, which must pass public sector due diligence tests weekly, we do not expect our funds to just disappear.

In the absence of answers from the FCA, those affected are turning to the Complaints Commissioner for answers. The commissioner recently released his findings regarding a complaint by George Patellis. In 2011, as the newly appointed chief executive of the company making investments on behalf of the Connaught fund, he reported to the FSA what he considered a systematic defrauding of the fund. This was an act of genuine integrity from a senior figure in the financial services sector, and the response by the regulator then and now should gravely worry all Members of this House, and particularly the Treasury. The finding issued by the commissioner describes the FSA’s response as unco-ordinated and fragmented, and condemns it for failing to prevent continuing detriment to investors.

I had the opportunity to discuss this, when I met Andrew Bailey recently. I highlighted my concern that there was a danger the FCA would be damaged by its handling of legacy cases such as Connaught, and the same may be said of the Global Restructuring Group issue. I was therefore disappointed to see the FCA’s response to the commissioner’s findings. He recommended that Mr Patellis receive a public apology. Instead, the FCA chose to issue a private letter of apology. Not surprisingly, Mr Patellis described that as “beyond disappointing”, and reiterated many of the failures of regulation by the FSA and FCA since he first blew the whistle on what he strongly believes was a process of fraud and misappropriation of funds. For the benefit of other Members, I am happy to lodge the Complaints Commissioner’s findings and the correspondence between the FCA and Mr Patellis in the Library.

The Complaints Commissioner refers to an internal assessment by the FCA that confirms the FSA delayed reporting this alleged fraud to the police for approximately 18 months. I would welcome a reassurance from Treasury Ministers that this assessment has been shared with them.

So, whether we are looking at the operation of financial services companies as payment services providers, investment managers or commercial lenders, we must expect integrity. It is not yet clear that the FCA is upholding that standard any more now than was the case under the FSA regime so comprehensively criticised by the Complaints Commissioner. That is the challenge facing Mr Bailey and his team as we head towards 2017. Our challenge here is to make sure that that integrity is delivered on.