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Wheatley is pleading the ‘fifth’.

Panacea comment for Advisers

14 Jan 2014

In the constitution of the United States when a suspect invokes his or her Fifth Amendment right to remain silent, this is referred to in the vernacular as "pleading the Fifth." It should not by any means be taken as a sign of guilt, but it is generally portrayed as such in the movies when some criminal act is trying to be covered up in the hope it goes away. 

The FCA consultation paper CP13/14 states thatWe are funded entirely by the fees and levies recovered from the firms we regulate – we receive no subsidies from other sources”.

Perfectly clear then. But there should be an expectancy that firms are charged correctly, reasonably and above all fairly.

Buried in CP13/14 section 3.6, on page 21 of a very tediously worded document we find this:

“At the same time, it creates an opportunity to remove an anomaly in the outcome of our fees

calculations for fee-blocks A12 and A13.

Fee-block A12: We are recovering £44.5m of costs from only 1,899 firms. Their total

income is £19.1bn, giving a fee-rate of £2.39 per £1,000 and an average fee per firm of


Fee-block A13: We are recovering £39.2m from 6,768 firms. Because the firms are on

average smaller, their total income is only £6.1bn and the average fee per firm just £6,210 but the fee-rate is higher than in A12, at £6.89 per £1,000. 

The A13 fee rate is nearly three times higher for firms that carry a lower risk.

I was reminded of this great quote from Al Capone “When I sell liquor, it's called bootlegging; when my patrons serve it on Lake Shore Drive, it's called hospitality”.

Now we know why APFA quite rightly asked that firms should be compensated for what in effect is an overpayment for many years and not as the FCA would suggest an “anomaly”.

So in the world of financial services regulation, Martin Wheatley appears to have just “plead the fifth” in saying that “We work out our fee blocks every year, and the fact there may have been a mistake in one of the fees is quite different to saying there was an overpayment and a need for an adjustment the following year”.

As I understand it, Mr. Wheatley places great store in regulated firms and individuals asking themselves if their actions are morally correct. 

This is a question to now ask of himself and the staff who created this £118m “anomaly” I would suggest. 

Wheatley says “We have to collect our fees and we end up with zero at the end of the year, it is not as if we have a lot of reserve funds.”

Try telling that to the regulator when you cannot pay the fees and I suspect we know the answer.

Why are there not lots of reserve funds?

Simples: because they take money from regulated firms then find a way to spend it as quickly as possible, not conserve it or ensure value, then ask you for more. 

I am deeply disturbed that such a very large amount can be dismissed as an “anomaly”. I think APFA may have to consider some drastic actions to counter this if these assumptions are correct. 

If this was a bank or insurance company overcharging it’s customers and they tried the “anomaly defence” I am sure the fines would be raining down thick and fast.

Should advisers withhold fees if they can demonstrate an overcharge? 

Should APFA support such action? 

And should the TSC be asking why no refunds are forthcoming, especially when the victims are mostly small businesses who do not have lots of reserve funds as they have paid more than they should to an inept regulator over a number of years?

Al Capone reckoned that Capitalism is the legitimate racket of the ruling class”. I wonder what his view on financial services regulation would be?

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Comments (2)

A very interesting article which yet again highlights the unedifying fact that when it comes to fees and charges the big outfits benefit to the detriment of the small. FCA fees are but one example, APFA fees are another and the fact that (For example) Key data was not categorised as a provider was at the behest of and pressure from the higher fee blocks.

Although I can well understand (and indeed sympathise) with the calls for reimbursement of overcharged fees, this is a rather inelegant way round the problem. Perhaps it might be more fruitful if going forward we might see some compensatory reduction in our fee block, made up by a small upwards adjustment in the other blocks. After all the money has to come from somewhere and the Regulator has already spent the income with alacrity. After all the money for £500 per night away days has to be met out of the budget.

Harry Katz   17/01/2014   10:13
Excellent article elegantly written.
If the parasitic figureheads at the top of the FCA had an ounce of decency and common sense between them they would realise that the example they continue to set with dishonourable behaviour like this will do more to undermine the UK financial services industry than any number of "ordinary" crooks and con-men.
The message the FCA is sending is received loud and clear. "The regulator cannot be trusted - it can take as much of your money as it wants - get stuffed".

Can their knight hoods be far behind?

Michael Both   17/01/2014   12:51


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