Midas Financial Solutions Collapse

Tulip Siddiq 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.

--- Later in debate ---

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

It is a pleasure to serve under your chairmanship, Mr Stringer. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for securing this important debate, and for the work he has done to highlight how his constituents, and others in north-east Scotland, were affected by the Midas Financial Solutions Ponzi scheme, and the overall awful impact that fraud has on communities across the country. It was a powerful and inciteful speech, and I learned a lot about the background of the case. Even though I had done some reading on it, I learned a lot more of the details, and the more I learn about them, the more alarming the case seems.

Fraud is an incredibly serious crime. It can destroy lives and tear communities apart. The hon. Member for Gordon (Richard Thomson) rightly pointed out that the tragic thing about the Midas case was that many of the victims knew each other, and even convinced others to invest. That is known as affinity fraud, which results in whole communities not only losing money but feeling guilty over having brought friends and loved ones into the scams. For the people affected who are watching today, I want to say that they have no reason to feel guilty. The only person responsible for this horrendous crime is Alistair Greig, and I hope the people affected know that.

It was heartbreaking to read about the victims of Greig’s fraud. Every Member who spoke on this, and so powerfully, has said that. I came across one story of an individual who invested their life savings in Midas to pay for their sister’s long-term dementia care and lost everything. To make matters worse, despite Midas being closed down at the end of 2014, the victims had to wait until July 2019, and the judgment of the Court of Appeal, before they were able to access the Financial Services Compensation Scheme.

Victims have been put further out of pocket after being forced to pay the legal costs for the various court cases, which we have already had a bit of a discussion on today. The hon. Member for Strangford (Jim Shannon) and I have both mentioned the huge amount of legal costs. That is something that no one should have to go through. That is why I was taken aback by the comments made by the Business Secretary last month when he suggested that fraud is a lesser crime, not experienced by people in their day-to-day lives. The Business Secretary should say that to Norman Masson, a self-employed builder who told the High Court in Edinburgh during Greig’s trial that he fell victim to fraud that caused him severe anxiety, losing over £30,000 that he was going to use to help his daughter with a mortgage deposit; or to 69-year-old Mark Ansell of Durris who is no longer able to retire, having been conned out of his savings by Grieg.

I am also worried about the fact that reports of fraud are up by 33% in 2021. Despite that, the Crown Prosecution Service has cut the number of specialist fraud prosecutors by more than a quarter over the past six years, from 224 at the end of 2015 to 167 by the end of 2021. Does the Minister wish to comment on that? Indeed, the Government’s former Minister for Counter Fraud, Lord Agnew, stated in his resignation letter that the Government’s record in tackling fraud is “lamentable” and that they have little interest in the consequences of fraud to our society. It was a shocking admission from the former ally of the Prime Minister.

There are many questions that the Government must answer about the specific warnings leading up to the collapse of Midas. Why were so many warning signs ignored? The hon. Member for Gordon said that in July 2012, Greig lied to the then FSA in an email, in which he wrote:

“I can confirm I have never been removed from a mortgage panel.”

That outright falsehood could have been easily disproven by some very basic investigative work.

Another missed opportunity came when a whistleblower, Richard Evans of Banff-based Structured Financial Planning, contacted the FSA to raise concerns in October 2012. For reasons that are difficult to fathom, the FSA still failed to intervene at that point, despite being told directly that something was wrong. If regulators and law enforcement agencies had acted when they first saw evidence of foul play, much of Greig’s fraudulent activity could have been prevented and a lot of the people affected could have been spared.

Greig was taking cheques from people, putting them into a private bank account and then spending it like it was his own money. It is frankly shocking that at no point did enforcement agencies question why £13 million had been paid into his account by hundreds of different people; that should have been a red flag. As the hon. Member for Strangford said, Greig’s victims deserve to hear how the Government have learned from these failures. What reassurance can the Minster provide to the public that his Government are taking concrete steps, working with regulators and enforcement agencies, to prevent a crime on the scale of the Midas fraud ever happening again?

Finally, I shall pick up on the point raised by the right hon. Member for Orkney and Shetland on the lack of clarity about the nature of the contractual relationship between regulated advisers and appointed representatives. As the right hon. Member pointed out, Midas was an appointed representative of another firm, Sense Network Ltd. That meant that Sense was able to avoid liability for the losses that Midas had incurred, which seems grossly unfair, and I wonder whether the Minister wants to comment on that as well. As seen both in the Midas case and the Greensill scandal last year, the complexity of those contractual relationships is putting the public and taxpayer’s money at risk.

In July 2021, the Treasury Committee reported on lessons from Greensill Capital. It recommended that,

“The FCA and HM Treasury should consider reforms to the appointed representatives regime, with a view to limiting its scope and reducing opportunities for abuse of the system.”

Could the Minister please explain why, despite the fact that Midas’s abuse of the appointed representatives regime first came to light almost seven years ago, the Treasury has still not brought forward proposals for reforming the system? Does he have plans to reform the system?

The Midas scandal demonstrates that fraud is an incredibly serious crime, which can have devastating consequences for victims and their communities. I want to finish by asking the Minister a few questions. I am sure he will answer them properly because he is diligent when it comes to detail.

Does the Minister recognise that fraud is indeed a serious crime, and does he recognise how much it affects our constituents? Does he recognise that fraud and error under the Chancellor have cost taxpayers an estimated £11.8 billion? Will he tell us what we all want to know: what are his Government doing to protect the public from fraudsters? We are all constituency MPs, even if we have a Front Bench role, and we want to protect our constituents from fraud. Will the Minister help us by outlining plans to do that?