Rothschild Bank and Mortgage Equity Release (Spain)

– in Westminster Hall at 5:08 pm on 22nd January 2014.

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Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs) 5:08 pm, 22nd January 2014

It is a delight, Mr Turner, to serve under your capable stewardship again this afternoon. I am delighted to have secured this debate about an issue of direct concern to not only my affected constituents but, as I have become aware, several hundred other UK citizens. I am seeking justice for them. I urge financial institutions such as Rothschild to come clean on their involvement and to discharge their moral responsibility towards people, many of whom are elderly and retired, who risk being left destitute. That has happened primarily because they had good reason to believe that Rothschild was the reputable and trusted brand behind a financial product that now looks more and more like a property scam and mis-selling. Will the Government and the Minister investigate the matter fully to assess whether victims have been scammed and there is a case for compensation? Will the Minister speak to Rothschild to make a moral case about what the bank may end up defending in courts in Spain, the UK and elsewhere on the flimsy pretext of, “Not me, guv”?

The matter resembles nothing more or less than an equity release scam, and it is not only Rothschild that is linked to it. Other banks, including Scandinavian and British ones, lured pensioners into gambling away their lifetime savings and homes on two enticing but ultimately flawed pretexts: first, that by investing in a loan secured against a mortgage on a property in Spain, they would obtain a small income additional to their often limited pension in retirement; and, secondly, that by registering a mortgage on that property, they could be helped in eliminating inheritance taxes for their children. Imagine an elderly couple who have worked hard all their lives, paid their taxes and contributed to society and the community—a professional couple who have planned for their retirement carefully, one of whom has suffered significant health problems in later life. They have invested all their wealth and savings in one retirement property in Spain. They do not have other assets or sources of wealth, and they are offered an enticing double bonus of releasing equity and gaining inheritance tax advantages regarding their retirement property in Spain.

Such an enticing offer perhaps sounds too good to be true, and it certainly was for my constituents, a retired couple whose lives I have just described in summary. When that offer is packaged and presented as being backed by such an eminent and reputable a financial institution as Rothschild, that is the icing on the cake. They might have thought twice if they were dealing with some fly-by-night operator, but Rothschild? Even someone unfamiliar with the financial world would recognise that name and see it as conferring some prestige and status on any product being offered.

Rothschild is, as its website and company information proudly proclaim, one of the world’s largest independent financial advisory groups, employing around 2,800 people in 40 countries around the world. This worldwide brand proudly states that its 200-year-old reputation is based on clear values of excellence, teamwork, focus on the client, the long-term interest of the client and—at the top of the list—putting the client first. Rothschild explains:

“We provide outstanding client service, with the highest standards of professional integrity to build enduring relationships of trust and confidence.”

I say to Rothschild: “You have badly deviated from your core values, badly served your brand and reputation, and badly served people who regarded themselves as your clients and not the clients of some intermediaries, as you claim. They are now facing penury after investing in products in which your name—Rothschild—your integrity and your values were used as a key selling point.” To walk away from those hundreds of citizens and to deny not only liability, but any assistance, and to force them through costly court actions in Spain or elsewhere, is a stain on Rothschild’s history. The Rothschild family motto “Concordia, Integritas, Industria”—harmony, integrity, industry—seems somewhat absurd when my constituents and others face personal ruin.

As I mentioned earlier, Rothschild is not alone in the firing line. Danske Bank, Sydbank, Nykredit and others are not only in the firing line over this, but in the dock, with some people in custody. A warrant was issued in Spain by the general directorate of police and the Guardia Civil in Madrid on 26 November for two Rothschild employees, Mark Coutanche and Stephen Dewsnip, who are directors, to appear in court to face criminal charges. The warrant relates to accusations that N. M. Rothschild & Sons sold mortgages to Spanish-based pensioners as a tool, albeit a legal one, to defraud the Spanish tax office and deliberately concealed crucial data that would prove that its equity release product was impractical as an investment.

Let us look at the evidence for the case against Rothschild and others. They completely, unarguably and incontrovertibly provided support, training, the terms of business for intermediaries selling the inappropriate products, supportive promotion through glossy brochures and websites, and much more. For Rothschild to say that it was not directly involved and that the product was sold through intermediaries, which distances it from the situation, is akin to a parent saying to their child, “It’s not my fault that the Christmas presents are broken or cruddy, it’s Santa’s—sue him!”, or to a retailer blaming its supply chain for worker exploitation in Bangladesh when it is selling T-shirts for £2, or for horse meat in its beef lasagne. It is not good enough. We all know who should take responsibility.


Mr Irranca-Davies is quite right in everything he says but I feel it also needs to be pointed out that it is not just a moral case for taking action against Rothschild here but there are various legal reasons why they must be held accountable and particularly why the FCA, or FSA as it was, should be required by the Government to take action and stop shirking its duty. Rothschild keep saying that they were “only the lender” and that it was third parties offshore that were responsible for promoting and selling the product. As a regulated bank there is no such thing as being “only the lender” because as such there is automatically a duty of care not only under Common Law but under the Consumer Credit Act and the FSA/FCA rules where lenders are obliged to make sure it is in the best interests of the clients and it is also fraudulent to sell a product using false claims. As for the claim that it was third parties that did the selling, the main participant in that was Rothschild’s own Guernsey subsidiary, particularly their director Mr Stephen Dewsnip who was the main promoter of the scheme, and at all times and in all aspects of the promotion and operating of the scheme the Guernsey subsidiary has been acting as the agent of the parent company in London. Letters from officers of the Guernsey company to victims are always signed off as “Agent and Service Provider for NM Rothschild & Sons Ltd”. Again it is not only a moral responsibility that Rothschild have here for what they have done, but a legal one as the Law of Agency makes it very clear that principals are responsible and accountable for the actions of their agents wherever those actions are carried out, and Rothschild’s own loan contract with the London parent company makes it very clear that the agreement is subject to the exclusive jurisdiction of English law. Also, under the FSA/FCA rules, it is clearly stated at DISP 1.1.4 that when activities are outsourced to third parties it is the party doing the outsourcing that is accountable for the actions without any restrictions on where those actions are carried out. The FSA/FCA have been refusing to accept this using such fatuous and pathetic excuses as saying that as it was done outside their jurisdiction, the rule does not apply, when the rule was obviously written to make sure the rule did apply to exactly this sort of attempt to avoid responsibility. That is the point of it. Another example of the FSA/FCA refusing to act when they have a clear responsibility to hold Rothschild accountable is that they have kept insisting that it is not a “regulated mortgage” when nobody had ever claimed that it was. That would be a whole separate issue, but it has been claimed that it is a “regulated activity” under the Regulated Activities Order 2001 because it comes under the definition of “arranging investments for third parties” which is exactly what Rothschild in London was doing in these cases. In the FSA/FCA Handbook it does say that if transactions are carried out offshore then they are outside the jurisdiction and the FSA/FCA have insisted that this is the case referring to their rule book at PERG 2.4 "which sets out the link between regulated activities and the UK". Unfortunately they omit to mention that if you read a little further to PERG 2.4.3 (G) 4 one finds that it says that cases where all other aspects of the management of an investment and the investment transactions take place outside the UK, it might seems as though the whole thing is outside the jurisdiction, but “ when all decisions about what to do with the...

Submitted by Michael Carney Continue reading

Photo of Heather Wheeler Heather Wheeler Conservative, South Derbyshire

I apologise for not being present at the start of the debate, Mr Turner; we had a little vote at the 1922 committee. When we look at the terrible tragedy that has happened, does the hon. Gentleman agree that the only safe way for people to take forward equity release is to use firms that are part of the Equity Release Council, which holds them to a high standard? In saying that I should declare an interest, because I hold an unremunerated position on the advisory board of the UK Equity Release Council.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs)

The hon. Lady is absolutely right to guide people towards good and assured equity release products. Not all such products are bad and nor are all sellers. It is a question of how the products are used and at whom they are targeted—I will come to that in a moment.

How can companies such as Rothschild choose to distance themselves from this matter when the people affected are UK citizens who were sold to by a Rothschild subsidiary based in Guernsey—Rothschild, of course, was established in England two or more centuries ago? It is not good enough for Rothschild to say that the situation is nothing to do with it and that people should take the matter up in the Spanish courts. The hon. Lady’s advice, however, is very good.

We all know who should take responsibility. As we say at home, “Man up.” Rothschild backed these products to the hilt, resourcing and designing them. It lent its name and support to the selling of them. It was party to the flogging of unfit products to unsuitable clients who did not suspect that they were on the back-end of a dodgy scam that was fit for Trotters Independent Traders. At least we could laugh along with Del Boy and Rodney; there is no laughter when my constituents and many others face poverty and hardship in their retirement.

Rothschild and its compliance and legal teams have been robust in disputing the allegations and, indeed, have threatened legal sanctions against those who repeat them. The allegations are very sensitive. When I first raised the matter on the Floor of the House, I received a letter offering a meeting and suggesting that the facts, as explained to me, were “both incomplete and inaccurate”. The letter went on:

“Your statement that Rothschild gave advice and support is factually incorrect.”

I dispute that, as evidenced by my earlier comments and the further remarks to follow.

This debate has obviously caused Rothschild some consternation, as it contacted me yet again to stress that there were “serious factual inaccuracies”. It wrote:

“We trust you understand the importance to us that the position is fairly and accurately portrayed in Parliament.”

Here then is the truth, put fairly and accurately.

Although Rothschild has not provided me with wholly precise figures, it has advised me that just short of 130 loans were provided, of which fewer than 50 were loans to Spanish non-tax resident individuals, some of whom live in the UK. Parliament will note that the reason why Rothschild has those statistics is because a Rothschild product underpins the scam. Let us remember that it disputes that the situation has anything to do with it—it is those pesky intermediaries and savings people. As the now infamous CreditSelect series 4 product is a Rothschild product, I am sure that after this debate Rothschild will be able to provide me and Parliament with the precise figures on the number of loans and the number of people affected who are in this country, along with what the total and the average level of loan debt are for UK citizens, as well as the age profile of those UK citizens. It is a Rothschild product, after all—it is not delivered by Santa or anybody else.

I am fortunate to have seen—indeed, I have it with me—a copy of the presentation pack used back in 2006 to support the sale of these Rothschild products and to train and inform the intermediaries who went on to sell them to unsuspecting victims. It is prominently marked as

“not for circulation to the public”.

Its title is “Rothschild Channel Islands: CreditSelect Series 4 presentation”, and it is by none other than “Stephen Dewsnip, Director”, who as I mentioned earlier has been served a warrant to face charges in Spain.

The first slide—this is not for public consumption, remember—tells aspiring intermediaries and salesmen who want to flog this dodgy deal that Rothschild Channel Islands is the

“premier choice for offshore private banking services”.

That would have been reassuring for the intermediaries, who no doubt repeated the bold claim to future victims.

After detailing the design and extensive back-up for the CreditSelect series 4 product, the presentation lists by name, with phone numbers and e-mail addresses, five Rothschild contacts, including Dewsnip and Coutanche —he was also mentioned in connection with warrants in Spain—who were the guys behind the package. “Contact them,” it says. “You won’t be on your own as intermediaries. Look at this back-up provided directly by N.M. Rothschild and their senior people. They are, after all, the premier choice for offshore banking services.”

The presentation goes on to explain how the initial launch of the product in Spain will be followed by its roll-out in Portugal, France, the UK and so on—how exciting! It explains how Rothschild will instruct the valuer, check the application pack, clarify the details with an independent financial adviser and prepare the credit papers for the Rothschild credit committee, and how the lawyers would be instructed to prepare the legal documents. It goes on to explain the benefits, saying that there is no upper age limit, which is very handy for retired folk, and that no proof of income is required. Of course not; it is the property as collateral, stupid. There is no need to worry if those people are retired pensioners and the property is the only thing they have—if it is their life savings and entire worldly wealth invested in bricks and mortar.

A slide labelled “Key Features” explains that these products are

“Well-structured loan and investment products from excellent brand names”,

and that clients are

“not exposed to unnecessary risks due to Rothschild’s conservative approach”— there is that Rothschild name being used again as back-up.

Do we really think that the salesmen—the intermediaries —did not go big on the Rothschild name when they were flogging the product? Every single victim says that Rothschild was central to the sales pitch. It was made clear that Rothschild was behind the scheme and was backing the scheme—that it was the scheme. “No worries,” said the intermediaries whom Rothschild were training and supporting to sell CreditSelect series 4.

The main client benefits are listed in the document as an initial cash-back facility, liquidity providing a loan for investment, the prospect of long-term capital growth and tax planning opportunities. That is irresistible for the sales guys and for vulnerable victims, too.

In case anyone was in any doubt about how good the product was and who was backing it, the presentation told us that it was:

“A responsible, competitively priced asset-backed lending facility from a prestigious bank available to Spanish residential property owning clients.”

A “prestigious bank”: Rothschild Channel Islands, established in 1967 in Guernsey; a subsidiary of the Rothschild Group, established in England in 1798 and owned by the Rothschild family, whose motto is “Concordia, Integritas, Industria”, or harmony, integrity, industry. How incongruous that word “integrity” seems in the family motto in light of the action towards my constituents and others.

In case the role of Rothschild in this debacle is not yet clearly established, let me again go back to 2006 when Rothschild was saying this to promote the scheme:

“Our innovative product CreditSelect is available throughout a network of financial advisers around the world, thus giving clients straightforward access to credit” for a wide “range of purposes”. It also said:

“To help support those professional financial advisory firms with whom we have agreed terms of business for the availability of CreditSelect, we have a website dedicated to assisting the promotion and delivery of the service...This website is regularly updated to ensure that our introducers have round the clock access to all facility documents for downloading and printing…clients brochures, the latest Funds List”.

Fast-forward to 2012 and Rothschild, faced by potential actions in Spain and elsewhere, has changed its tune. It is now saying to complainants:

“Hamiltons”— that is one of the independent advisers, but you can insert any number of other financial advisers at your discretion, Mr Turner

“were your financial adviser and acted as your agent in relation to your application for a CreditSelect loan facility, we are not able to accept responsibility for any advice that may have been given to you by Hamiltons”,

or any other assorted intermediaries.

That is dissembling and distancing worthy of Pontius Pilate, and it is just as distasteful.

There are all sorts of scams and mis-selling, big and small: from the cowboy builder who sells someone roof repairs that they do not need, to payment protection insurance and mortgage mis-selling. There are real issues of mis-selling, but there are also fundamental issues of trust and integrity. We have seen a practice that can be described as predatory lending. Intermediaries might have laid a trap, but the trap was built by Rothschild. Unless Rothschild and others that are implicated in the scandal step up to the mark and accept their responsibility, this will become the latest chapter of banks and financial houses despoiling the very beds they lie in.

Rothschild’s family empire is estimated to be worth $300 billion to $400 billion. My elderly retired constituents’ net worth was tied up in the property in Spain that the Rothschild group ended up taking. Will the Minister examine the scandal and force Rothschild and the other banks involved to face their responsibility for impoverishing pensioners and to make good their losses? Rothschild can afford to do so; its reputation cannot afford not to. Rothschild has offered to meet me. I will be happy to do so on the clear understanding that I am looking for justice for my constituents and others, not excuses and legal defence.

Photo of Sajid Javid Sajid Javid The Financial Secretary to the Treasury 5:26 pm, 22nd January 2014

I welcome you to the Chair, Mr Turner. It is always a pleasure to serve under your chairmanship. I thank Huw Irranca-Davies for making a powerful case on behalf of his constituents. I assure him that I have listened very carefully.

Some of us will have constituents affected by these products who now face an uncertain financial future instead of the comfortable retirement they thought they had earned. As the hon. Gentleman said, the equity release products in question were sold to some UK pensioners resident in Spain. It seems that they were sold by independent financial advisers operating in Spain who suggested that they release equity from their houses and invest the loan in a fund, often claiming that that would have inheritance tax benefits. The products were then provided by a variety of banks, mainly based in Scandinavia, but including Rothschild bank.

With the onset of the financial crisis, those investments did not perform, so many of the investors breached the terms of the loan they were given. That has left many expats in Spain, including those from the UK, with significant financial losses. Some of the banks involved, many of which were facing their own financial difficulties, have sought to repossess the properties on which the loans were secured. That has left some pensioners facing not only large losses, but the threat of repossession, which is a stark contrast with the comfortable retirement they had planned.

Of course, I am sympathetic to the difficulties that these people are facing. Many of them have lost a great deal, but I am afraid that the Government’s ability to act in this case is limited. The products were not sold in the UK or by UK companies and the loans were not secured against properties located in this country, so the UK authorities do not have any jurisdiction over that activity.

What I have said will be frustrating for the individuals involved, but the same rules allow our own regulators to protect our domestic consumers from foreign banks operating here in the UK. I realise that some banks in Europe were involved in providing the products sold by independent financial advisers in Spain. The hon. Gentleman highlighted Rothschild bank specifically. It has strong historic connections with the UK.

I have looked into the matter further, and I understand that Rothschild sold around 130 of the products between 2005 and 2008. However, that activity was carried out by its Guernsey-based entity and, as the hon. Gentleman knows, the Channel Islands do not come under the jurisdiction of the UK Government or UK regulators. The Guernsey regulator may have some jurisdiction over the design and distribution of the product, but that is not for the UK authorities to establish. I understand that some of those who have lost out have taken the case up with the Spanish authorities, and that may be an appropriate option for them.

I am sorry to report that the UK Government have limited influence over this case. I understand that Rothschild has provided affected customers with some flexibility. For example, it is my understanding that it is not repossessing the properties of those that have been affected. That, of course, is welcome. As I said, the UK authorities do not have any jurisdiction over this activity. However, I appreciate that Rothschild has major operations in the UK, so I am happy to write to it to pass on some of the concerns that the hon. Gentleman has raised. I will also raise the matter with my counterparts in Spain and Guernsey to bring it to their attention. I will be more than happy to meet the hon. Gentleman and his constituents if he would find that useful.

The hon. Gentleman may be interested to know that the UK ambassador to Spain wrote to the Spanish regulator about this issue in 2012. Following that exchange, the Foreign Office published advice for people considering taking out equity release products in Spain. It highlighted the importance of checking that the company offering the mortgage is registered with the Spanish financial regulator, known as the CNMV. The publication explains that consumers unhappy with the product should first complain to the company responsible and that, if they are still dissatisfied, they can complain to the Spanish financial regulator.

In a broader context, my hon. Friend Heather Wheelergave sensible advice for people who are thinking of taking out similar equity release products in the UK.

In summary, I fully understand and support the hon. Gentleman’s concerns for his constituents affected by these products.


The Minister, Mr Javid, in response to the request by Mr Irranca-Davies to force Rothschild to make good to the victims of this scandal, has replied in terms remarkably similar to the excuses of senior officials at the FCA, and previously at the FSA. He says that “the Government’s ability to act in this case is limited. The products were not sold in the UK or by UK companies and the loans were not secured against properties located in this country, so the UK authorities do not have any jurisdiction over that activity.” That is exactly what Mr Wheatley and his cohorts at the FCA such as Mr Adamson have been saying, while picking and choosing which bits of the Law and the FCA Handbook to apply to the case. Sadly for them, it is not true. Firstly let us look at his statement that the Government’s ability to act is limited, and later that the UK Government have limited influence over the case. He seems to be missing the point - or deliberately avoiding the issue. The complainants in this matter have not been asking the Government directly to take on Rothschild but simply to force the regulatory authorities, which have been set up to protect the public from such fraud, to honour their obligations and fulfil their duty. The Minister, as Financial Secretary to the Treasury, must surely be aware that the Treasury Committee, of which Mr Tyrie is Chairman and to whom we have written personally on this matter, has responsibility for the operations and effectiveness of the FCA, and certainly has power to ensure that when there are total failures by them to fulfil their duties, that they are forced to do so, or be replaced. There was the example in very recent history of the rate fixing of LIBOR that was going on under the noses of the FSA and yet, although senior members of the FSA were aware of what was going on, they significantly failed to do anything about it. It was not beyond the powers of the Government to do something about that failure and the guilty parties were finally held to account. It seems clear therefore that the Government does indeed have plenty of powers to act in this case and they do have the necessary influence. All they need to do is stop and look closely at what the FCA is putting forward as excuses and examine the facts in the light of what the law and the FCA Handbook actually says. When the Minister says the products were not sold in the UK or by UK companies and not secured on UK properties, that is simply reiterating the pathetic excuses put forward by Rothschild and accepted and repeated by the FCA. The Law of Agency and the FCA Handbook make it abundantly clear that it is the principal or the party doing the outsourcing, not the agent or the party carrying on the outsourced activities that is responsible and accountable in the UK. The fact that the loan was not secured on a UK property is simply another red herring put forward by the FCA. As explained in the annotation to Mr Irranca- Davies’ remarks, the FCA has its...

Submitted by Michael Carney Continue reading

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs)

I thank the Minister for a very positive, full and helpful response. He may not be able to answer this question now, but does he think that there is any scope within European legislation or elsewhere to avoid this situation happening in the future? In this situation, a UK-based company that has a subsidiary in Guernsey operates in Spain, and people assume that it is applying the same ethical and moral standards elsewhere. Let us lift the debate above Rothschild for a moment. Any company doing what has been described could, within the European Union, be brought to book in one way or the other. Does the Minister think that there is something there that we should be exploring?

Photo of Sajid Javid Sajid Javid The Financial Secretary to the Treasury

When I first looked into the issue, I thought about that. Unfortunately, I do not think that there is such an avenue through European Union institutions. I am happy to explore the matter further; perhaps when we meet, I can give the hon. Gentleman more information. He may be interested to know that there is currently a mortgage market directive. It is in its final stages in the European Union, but I think that I am right in saying that it does not include equity release products. Obviously, it would not have helped the hon. Gentleman’s constituents anyway; it is for the future.

I am happy to raise the issue with people in the way I have explained to the hon. Gentleman and I thank him again for bringing up this case. I will be happy to report back to him.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs)

The few minutes remaining provide an opportunity to get more issues on the record. The Minister may be interested in responding to some other people who have written to me subsequently, when they learned of the debate. One of them wrote:

“When my wife and I met Mr Dewsnip”— who came up earlier in the debate—

“at one of his public presentations and had a private chat with him after the main event, he most certainly did advise us as to the suitability of the investment fund and assured us that Rothschild would be working on a daily basis with the fund managers to ensure that it was meeting expectations and performing as expected.”

I could cite other examples that imply an intimate, daily, minute-by-minute relationship, but I have yet to discover whether that also means that Rothschild or anyone who worked for Rothschild was financially benefiting from it. That would be interesting and it may figure in a subsequent meeting that I have with Rothschild.

Photo of Sajid Javid Sajid Javid The Financial Secretary to the Treasury

The hon. Gentleman is right to ask such questions and to raise them in any meeting that he may have with Rothschild and with the relevant regulators for the entities that we have discussed today. I will report back to the hon. Gentleman in due course. I thank him again for raising this important issue.

Question put and agreed to.

Sitting adjourned.