Influencing your opinions?

The media has recently been full of the details of the FSA flexing its regulatory muscles.  HSBC received a record fine of £10.5m in respect of the activities of its subsidiary NHFA connected with long-term care planning for elderly clients.  The coverage was conspicuously quiet on the fact that the HSBC had already spotted the issue, reviewed its clients and compensated them by the time the matter was reported to the FSA.  Don't get me wrong, I enjoy knocking the highstreet banks as much as the next man, but actually on this occasion the HSBC does appear to have acted both quickly and responsibly. 

Then there's the case of the EEA Life Settlements Fund.  It's not one we've ever used, but it's not difficult to spot that it has been a stable and consistent option for intermediaries who are persuaded by the investment approach.  Following the issue of the FSA's categorisation of this kind of investment as 'toxic', EEA Fund Management (Guernsey) Ltd have had to suspend dealings in the fund, following a run by panicked investors, triggered entirely by the FSA statement.

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And now we have the case of Transact.  The venerable Wrap platform has been fined £3.5m by the FSA in relation to some breaches of the CASS rules pertaining to custody of client monies.  The way the matter is reported in the media is, however, quite significant - today's article in FT Adviser being a case in point.  Those prepared to look at the article, should note the following obvious characteristics:

• In terms of basic spelling and grammar, the text appears almost incoherent.  One is left wondering what qualities might be necessary for a career in journalism:  clearly, the ability to string together a sequence of words in order to form a valid sentence is not one of them;
• The overall thrust of the article is to raise suspicion about Transact, so that by the time Malcolm Murray is given the space to utter a few platitudes (at the end) the damage is already done;
• The use of sweeping generalisation betrays a singular inability to interact critically with what one is told (do journos simply regurgitate the things they read?).  The following statement stands out immediately as worthy of further investigation: "The FSA yesterday said Transact’s parent company Integrated Financial failed to perform any client money calcuations for a nine-year period up to 2010, when the regulated visited the firm and uncovered the error."  (Reprinted here exactly as reported in FT Adviser!)

So, let's think briefly about that last one, shall we?  Transact run, as we all know, segregated client accounts.  Every one of those accounts religiously accounts to clients for the interest accruing on cash balances, and in respect of dividends, tax credits etc.  How is it conceivably possible that the statement in relation to "any client money calculations" (spelling corrected for the benefit of FT Adviser's journalists) could be even considered to be accurate?  Clearly, on the assumption that some kind of technical breach has occurred, then this is not a remotely accurate description of it.

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And there's another element here which no doubt the sentient reader will have spotted.  The paragraph gives the impression that Transact was getting away with this kind of general financial mayhem for nine years, until the FSA rolled up and put a stop to all of it.  In fact, the FSA had conducted audits of Transact's procedures every year over those nine years, and it was only on that final occasion that they had spotted something awry.  It looks to me as if CASS is as ambiguous and confusing to the regulator as it is to everyone else.

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Transact, of course, are not arguing with the fact that they had inadvertantly breached an aspect of the CASS regs.  Their own auditors had not spotted the matter either.  Given that it apparently took the FSA nine years to spot the matter, and given that 'Integrated Financial Arrangements' are not generally known as a flashy, marketing-driven, gung-ho outfit, doesn't this make you wonder about the potential for non-compliance amongst other players which may not have quite the same attention to detail?