Beware fake FSA logos
The UK’s Financial Services Authority (FSA) puts out lots of boring announcements and, on the face of it, the recent press release headed, “The FSA announces changes to the use of its logo and Statutory Status Disclosure Statements”, is no exception.
In fact, these changes are of great importance for anyone concerned about the safety of their savings – it’s just a pity that the FSA has managed to turn what should have been a loud warning bell into a barely audible whisper.
The question of who can use the FSA logo can be traced back to the problem of what’s called ‘passporting’.
Under rules issued by Brussels, anyone who gets a licence to run a bank, an insurance company or an investment firm in any European Union country, or in Iceland, Liechtenstein or Norway, is automatically allowed to do business in all other EU countries.
Yes, that’s right: open a bank in Latvia and nobody can stop you doing business in the UK too, even if there are suspicions your Latvian bank is connected to the Russian Mafia. Set up as a stockbroker in Bulgaria, whose tiny stock exchange is barely a decade old, and you can be trading in the City of London within days.
The system is based on the premise that all European regulators are equal, so if you’re vetted by watchdogs in Romania or Estonia, then that’s just as good as being vetted in London by the FSA. But this is pure fiction.
Criticise the FSA as much as you like, but the fact is, when someone in the UK applies to join the financial services industry, the regulator digs deep into their background and qualifications in a way unmatched by any other European country.
Even major financial states like Germany are not as well regulated – you can work for an investment firm there and the regulator, Bafin, will not even be aware of it. In 2007, for example, the Berlin police raided a stockbroking firm called Atlantic Capital Partners. Its head of sales was a British man, Daniel Gooding, alias Daniel Tresader, who was wanted for questioning over investment scams in Spain and has appeared in this column before. The German watchdog didn’t even know he was in the country.
Another Berlin broker, FSW Securities, hired convicted British fraudster Julian Blee, first as a salesman and then as a trainer for other salesmen. Again, Bafin had no idea he was operating there.
Yet under the passporting scheme, both Atlantic Capital Partners and FSW Securities were entitled to sell high-risk shares to British investors. They were also entitled to use the FSA logo in their advertising and claim they were regulated by the FSA, even though they did not have to stick to its regulations.
The FSA has finally woken up to this risk to its reputation. It still can’t ban foreign firms, but it’s trying to stop them giving clients a false sense of security by preventing foreign banks from using the FSA logo in their advertising. It has also ordered them to reveal their ‘home state’ regulator and to make clear the limited extent to which the FSA has any influence over them.
However, foreign firms that don’t take deposits from the public, such as insurers and stockbrokers, will not face the same restrictions until next October. Until then, you may still see them sporting the FSA logo and the magic words telling you that the firm is regulated by the FSA – just don’t believe it.
Of course, a foreign firm can apply to the FSA for its own licence to do business in the UK, which means it will be fully vetted and its customers protected by the Financial Services Compensation Scheme. A few firms have already done this. It will be interesting to see how many more will join them now that it’s becoming more difficult to help yourself to the FSA logo.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.