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Blackandwhite most likely fell on its own sword

The comment from the anonymous insider at Blackandwhite (Mortgage Strategy February 25) was a display of sour grapes based on a lack of know-ledge and understanding about how the FSA works.

Any compliance professional who has been involved in an enforcement action or has a good grasp of the FSA’s rules and regulations in this area must have been laughing their socks off when they read the article.

In truth, this much smoke must have been the result of a big regulatory fire. Let me explain.

The decision to remove a firm’s permissions is a serious matter and in normal circumstances must be made by the Regulatory Decisions Committee.

The RDC accounts for its actions to the FSA board but beside its chairman, RDC members are not employees of the FSA.

In exceptional cases, the chairman of the RDC can make a decision on their own. If they are not available, an FSA director can make the decision. The decision-maker must not be involved in the investigation if possible.

Given the timescales involved, it appears that the Blackandwhite situation would have been subject to full RDC scrutiny if the allegations made are true.

Also, the firm could have appealed against any decision to the Financial Services and Markets Tribunal – a separate entity.

Furthermore, if the FSA (or any of its employees) were to act in the cavalier manner alleged by the writer of the piece, they could be sued in court and would be liable to pay damages to Blackandwhite.

I don’t believe it’s credible that the FSA would risk its reputation in this way just to nail a small firm like Blackandwhite.

The most likely scenario based on the facts and timescales is that following its well publicised visit, the FSA found some serious failings that threatened consumers’ interests.

As a result, it issued a warning or supervisory notice telling Blackandwhite what it intended to do and why.

There were then meetings between the two followed by a proposal from Blackandwhite about how to mitigate the risks the regulator had uncovered.

The FSA considered these, found them unacceptable and indicated that it intended to carry out the action as stated in its previous notice.

Not wishing to suffer public humiliation and a fine, Blackandwhite fell on its own sword.

Personal experience suggests that if anything the FSA is likely to tip-toe its way through enforcement actions.

After all, it has to be fair to the firms under scrutiny and careful to avoid mistakes that could lessen the effectiveness of its case further down the line.

The FSA is also likely to be helpful, considerate, willing to talk and keen to seek sensible arrangements provided they benefit affected customers. Most enforcement actions end this way. Indeed, fines tend to be a last resort and saved for the worst offenders.

Norman Masdik
Compliance advocate
Hampshire

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