Rothschild Bank and Mortgage Equity Release (Spain)

Part of the debate – in Westminster Hall at 5:26 pm on 22nd January 2014.

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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.


Michael Carney
Posted on 28 Jan 2014 6:26 pm (Report this annotation)

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 own very specific rules about arranging investments for third parties and if all the decisions on such matters are taken in the UK then the whole transaction is held to be in the UK.

For whatever reason, the FCA are desperately trying to avoid responsibility for this and are desperate not to take on the might of the Rothschild empire. For the Minister to say that as the activity was carried on by the Guernsey subsidiary, although the contract is with the London parent company, and that is where the account is, the fees are taken and that is where all the decisions are taken, then the whole business is outside their jurisdiction, is simply to deny the applicability of the law and the rule book to any business where they choose not to apply it. That is just not acceptable.

Another example of this flouting of the rule of law by the regulators is my own experience with the Complaints Commissioner, Sir Anthony Holland, to whom one is directed with complaints about the service of the FCA, or FSA as it was at the time. When the FSA kept refusing to accept the facts of the case against Rothschild, my wife and I took our case to the Commissioner and after much correspondence back and forth, during which he could produce no sensible or satisfactory argument to support his rejection of our complaint, he came up with his final decision to reject the complaint, to which of course there is no recourse. The problem with that was that the rejection was based entirely on his own invented ‘fact’ that our contract for this arrangement was supposedly with the Guernsey subsidiary, but in actual fact, such a contract never existed and was completely fabricated by the Commissioner himself. It was a figment of his fertile imagination but was recorded and published as fact on his website as one of his Final Decisions under reference GE-L01476. When I pointed this out to him, he then had the gall to threaten me with a defamation suit! It would serve the Minister well to examine this as an example of how the FCA is working in general, not just in this particular instance of fraud by Rothschild, but how they do pick and choose not only which bits of the law and their rule book to apply, but also in which cases to bother to enforce the law.

The Government’s ability to act is not limited, nor is its influence in this matter, which most certainly is within the jurisdiction of the authorities. The Minister should take a long hard look at the facts of the case and not rely simply on the feeble excuses of the regulators.