Part of the debate – in Westminster Hall at 5:08 pm on 22 January 2014.
Huw Irranca-Davies
Shadow Minister (Environment, Food and Rural Affairs)
5:08,
22 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
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.
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Annotations
Michael Carney
Posted on 26 Jan 2014 3:53 pm (Report this annotation)
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 investments are taken from an office in the United Kingdom. Given that the investments are held, and all dealings in them take place, outside the United Kingdom there may otherwise be a question as to where the regulated activity of managing investments is taking place. For the purposes of the Act, it is carried on in the United Kingdom."
This has been typical of the way the FSA/FCA have handled these complaints in that they have consistently been picking and choosing which bits of the law and the rule book they use to suit their own requirements and justify their lack of action over this Rothschild disaster. In this case ALL the decisions about the scheme and most particularly the investments that were allowed, have been taken by the head office of NM Rothschild & Sons Ltd in London and particularly by the Credit Committee there, and they are fiercely protective of their decision making responsibilities.
The matters on which the Credit Committee in London had to take all the decisions were
Everything else was a matter of simple administration of the day to day management of the loans which, as well as the promotion of the scheme, was delegated to their subsidiary and duly appointed agent for these purposes their Guernsey subsidiary. We do not see how anyone can not agree that this fits exactly into the scenario envisaged by PERG 2.4.3 G (4). So why do the FSA keep refusing to accept any responsibility? One is only left to wonder precisely what form of influence Rothschild have over the FSA.
Rothschild have a legal obligation and responsibility here, not just a moral one, and the FCA have a legal obligation to fulfil their duty to the public and enforce the rules that apply to all regulated bodies. Just a few years ago, while all this has been going on, the FSA fined Barclays Bank, and also the Norwich & Peterborough Building Society, very heavily for persuading old age pensioners to invest their savings in high risk investments suitable only for sophisticated investors, and made them pay substantial compensation to the victims. That is exactly the situation we have here except that Rothschild have persuaded very many old age pensioners to put at risk not only their savings, but their homes as well by investing in high risk investments suitable only for sophisticated investors.
Why are the FCA not applying the same principals here? The claim by Rothschild that they are not responsible is about on a par with Billy Bunter, jam all over his face, claiming he was not the one who ate the cake.