The new FCA is proving itself every bit as bad as the old FSA!

On 19 June, 2013, the Financial Conduct Authority (FCA) announced that they have fined financial arranger Gurpreet Singh Chadda £945,277 and banned him from working in the financial services industry, for 'significant failings' when conducting sale and rent back agreements.

This outcome proves that the FCA have not learned the lessons of failure which so marked out the actions of their failed predecessor, the FSA. This kind of pathetic refusal to prosecute wholesale financial criminal behaviour is a sad return to the bad old days of the feeble Fantastically Supine Authority . These weren't 'significant failings' these were straightforward criminal offences of fraud, and this man should have been prosecuted in the criminal courts, and a serious message sent to the financial community that criminal behaviour in financial services will be treated as such, and people who steal and defraud clients and other financial providers will go to prison!

When single mothers on benefits routinely get prison sentences simply for failing to tell the authorities that they have a lover and that he stays the night, why should a man who just because he works in financial services, receive an entirely different treatment when he steal hundreds of thousands of pounds? It is the same grotesque differential that means that the poor get prison while the white collar criminals get to walk away from the consequences of their crimes.

Yet again, the FCA have proved that their Financial Crime Team is simply not up to the job of investigating and prosecuting these fraudsters, and instead, they have  shamelessly gone for what they would call a 'quick regulatory win', a scalp on the tent post, any scalp will do, just so they can show their political masters that they are doing something, anything, thus justifying their significant salaries and their copper-bottomed pension benefits, oh yes, and their bonuses!

The FCA investigated Chadda's involvement in seven sale and rent back transactions between June 2009 and January 2010 and found serious failings in all of them.

A sale and rent back transaction is an agreement where a home owner sells their home and then rents it back from the arranger so as to be able to carry on living there.

Often people who sell their homes in this way are vulnerable as they are in financial difficulties and need to raise money to pay mortgage arrears and avoid imminent repossession.

Chadda’s widespread failings included misleading the sellers of the properties, who were his customers, by telling them he would be buying their homes when in fact the purchasers were other people.

He also failed to notify the sellers that these purchasers were not authorised or regulated by the FCA, which meant they were not covered by the regulatory protections.

Chadda also helped purchasers to obtain mortgages in the knowledge that he was giving misleading information to mortgage lenders. In the seven sale and rent back transactions the FCA investigated, there was no independent valuation and Chadda assigned values to the properties based on the purchaser’s mortgage valuations or his own opinion.

He assigned to two properties a market value which was significantly less than actual market value.

In one case, he or his representatives fabricated a mortgage valuation to make it look as though the seller’s property was worth substantially less than its real value.

Chadda deceived the purchasers of six of the seven properties by obtaining mortgages when he knew that the mortgage lenders would not knowingly lend money on a sale and rent back transaction.

In one case he drafted a letter that falsely confirmed that the seller would not be remaining in the property after the sale.

Although the sellers expected to get a discounted price for their properties, they did not know that Chadda was receiving the full price for the properties from the purchasers.

In two cases he reduced the seller’s share of the sale money by misleading them about the value of their property, and in one case he exaggerated the legal costs that the seller had to pay, to further reduce the amount the seller received.

In three cases the sellers got less than half of the value of their property and in two of these three cases the seller only received 38% of the sale price of their homes.

The FCA believes that Chadda received £695,277 from the seven transactions as a result of his misconduct, and that these charges were unfair and excessive.

In her usual way, Tracy McDermott, director of enforcement and financial crime, made one of her usual pontifical statements about Chadda's misconduct. She said;

“...Chadda’s misconduct is the most shocking we have seen from a home finance arranger.

“He is a disgrace to financial services. He deliberately misled his clients for his own personal gain and then repeatedly and cynically lied to the FCA.

“Chadda is not fit to work in regulated financial services and he presents a serious risk to customers and lenders alike with his dishonest and unscrupulous actions.

“The unprecedented level of the fine for a sole trader reflects our determination to deprive him of the gains he made as a result of his misconduct.”

Chadda seriously aggravated his original misconduct by making false and misleading statements to the FCA, failing to disclose relevant documents and information and creating misleading documents. He also arranged for people to impersonate his customers in order to mislead the FCA.

If ever there was a case whereby a person should have been investigated and prosecuted for criminal offences, this was surely such a case!

But what happens? The Regulatory Agency treats him as if he has just failed to comply with some nit-picking regulatory niceties, and fines him the equivalent of the illegal profits he made.

In other words, he has just disgorged his illicit gains, but he himself has paid no additional penalty. Banning him from the industry will be a pyrrhic victory as he will surely find other areas of business to operate in where he does not need the same kind of supervision.

This man has clearly proven himself to be a danger to the financial market, but he has been allowed to walk away from his criminal actions, virtually unpunished. What kind of message does this send to the rest of the industry, many of whom may be tempted to try on similar activities themselves, as it is clearly so very easy!

The whole point of the Commission on Banking Culture was to establish a new approach to regulating the financial market, so the crooks and the wideboys did not get away with criminal actions.

Of course, Ms McDermott will continue to maintain that her agency does not have the power to prosecute simple offences such as fraud. The hearings during the Banking Commission scotched that interpretation, and Ms McDermott knows very well that she can engage with such actions, if she has the will so to do.

It's not difficult, any detective officer should be able to instruct her in how to do it, and it should now become a routine matter for the FCA, to prosecute all financial criminals, where the evidence exists to demonstrate that there is a prima facie case to answer.

If this doesn't happen, and we continue to see similar cases of manifest criminality and dishonesty being dealt with in a regulatory manner, then we will know that despite all their protestations, the FCA is going the same feeble way as the FSA.

So if this is going to be the case, then the question I want to pose in this blog, before things get any worse, is whether we should be able to expect better from our financial regulators?

The recent Commission on Banking Culture castigated the FSA for its many failings, indeed, I can rarely think of an similar example where a leading regulator was on the receiving end of such a series of vituperative comments, and we were told that the new Financial Conduct Authority was going to be a very different animal!

I think that the first question we are entitled to ask ourselves is how it is that so many of the people who were in post under the previously failed regulatory regime, are still in post under the new management regime? If the last staff members couldn't do the job properly, why should we expect them to be any more successful just because the organisation's initials have been changed?

I raise this point because I feel very strongly that the tradition of the 'safe pair of hands' or the 'one of us' mentality which permeates the British Civil Service and Government Service, causes a sclerotic obstruction in the body politic, and simply continues a culture of failure!

No-one who has any experience of the British banking structure in recent years, possesses any illusions as to the organised criminal nature of the edifice which has been routinely allowed to get away with the worst kind of financial crimes and fiscal excesses, without anyone of stature or importance being sent to prison for crimes which would make Al Capone blush for shame!

The persons responsible for allowing that state of affairs to proliferate were a bunch of spineless individuals who found it easier to turn a blind eye to the wrong-doing that was routinely being carried on, simply because their political masters wanted a 'light touch' regulatory environment.

Not one of these responsible people ever appears to have gone to the relevant committee at H.M.Treasury, and said 'Have you any idea what's going on - Do you know what some of these gangsters are doing?' No-one wanted to rock the boat, no-one wanted to put their heads above the parapet. Just keep your head down and push the paper and make the right soundings, and pick up your salaries and bonuses!

I do not apologise for saying that this is a pathetic state of affairs, and is a compounded admixture of incompetence and professional cowardice, coupled with a complete moral vacuum, and we, the investing public were being let down again and again and again.

And if the FCA continues to operate in this way in the future, we shall continue to be let down again, and again, and again!