Regulating Consumer Investments and Company Register Reform

 The Financial Conduct Authority (FCA) have launched a consultation on the Consumer Investment Market. They consider it a priority to reduce the harm that many consumers suffer from fraud in this sector. The FCA has this to say:

“We have made significant improvements to this market to protect consumers. But there are over 5,000 financial adviser firms and more than 27,000 individual advisers acting as intermediaries between the consumer and their investment. Dominated by small firms, these complex chains of interdependent products and services – some of which are beyond our regulatory remit – make it easy for bad actors to ‘hide’ and challenging for us to oversee. The consumer investment market is not working as well as it should. Too often consumers receive lower returns than they should because of unsuitable products with high fees. Too often there have been scams and scandals in this market leading to consumer loss. Too often consumers leave their savings in cash because they don’t have confidence in the alternatives. That’s why we have made Consumer Investments a priority in our current Business Plan”. They also say:

“Some of the most serious harms we see relate to investments outside our regulatory perimeter and online scams, many based overseas. We have limited powers and capabilities in this space, in particular in our ability to deal with online promotions”. This is now a major problem that the FCA has been particularly poor at dealing with as Mark Taber regularly points out.

The “Call for Input” document only has 38 complex questions so I suspect they are unlikely to get many responses from real consumers, but those interested in financial markets may care to read it. See here:  https://www.fca.org.uk/publications/calls-input/consumer-investments

The Government BEIS Department consulted previously on modernising Companies House who maintain the register of companies. The Government’s response to the consultation has now been published. You can read it here: https://www.gov.uk/government/consultations/corporate-transparency-and-register-reform

Company registration, and the identification of company directors is clearly a very essential element in preventing frauds of all kinds, but has been woefully inadequate in the past. The identify of directors is not checked and Companies House even has very limited abilities to query new applications. So you could probably set up a company called Mickey Mouse Ltd with the sole director named as Mickey Mouse. Indeed I did check to see if there was such a company registration. Yes there is a company of that name, although the sole director’s name is different.  

The report even says: “There are benefits to the UK’s fight against crime: these reforms will increase the accountability of those few that transgress. As noted, the volume of economic crime in the UK is immense and growing. It accounts for almost one third of all crime experienced by individuals. The Home Office estimates that the social and economic cost of fraud to individuals in England and Wales is £4.7 billion per year and the social and economic cost of organised fraud against businesses and the public sector in the UK is £5.9 billion.

We will be able to trace and challenge those who misuse companies through the improved information on those who set up, own, manage and control companies. In partnership with others, our improved analytical capacity will use this information to detect suspicious activity earlier and hold those responsible to account”.

The recommendation to tighten up on the identities of directors has been generally supported so that is likely to be progressed. The ability to suppress some personal information will also be enhanced to improve security over that.

In general I suggest company directors and shareholders should welcome the proposals as a step forward in modernising Companies House, but you may care to review the details.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Changes Proposed at Companies House

The Government BEIS Department have recently proposed a number of important changes to the way Companies House operates in a public consultation entitled “Corporate Transparency and Register Reform” (see https://tinyurl.com/yysf9gdn ). Here’s a brief summary of the main points:

This consultation will be of interest to anyone who is a director of a private or a public company, or a major shareholder in such a company (i.e. those People with Significant Control). Even directors of the smallest companies could be affected.

A major proposal is to verify the identity of directors and to collect more information on them (although not their email address apparently, which I have suggested be added). This can now be done very quickly and at minimal cost electronically using various verification services (e.g. listed GB Group in which I hold shares). This will help to prevent fraud and they even hope to be able to link all directorships in various companies together. For example, this might make it easier to track the past activities and record of directors which even in small listed companies can be very informative as to their competence and reliability.

They propose to continue to retain the records of dissolved companies for 20 years which many investors consider important and is useful for investigators of all kinds.

They also plan some changes to improve the protection of personal information held at Companies House. Bearing in mind that there are well over 6 million records of directorships, with significant personal information, this is clearly important.

For public company investors there are two significant proposals:

1 – Improved digital tagging standards for accounts, which might make it simply to provide information services based on them.

2 – A possible cap on the number of directorships any one person can hold. There are common complaints about “overboarding” where directors take on too many roles. I have suggested a maximum of 5 in public companies, with some possible exemptions, should be imposed.

In general the proposals seem eminently sensible and I suggest they be supported on the whole. You can see my detailed comments in a response submitted to the consultation here: https://tinyurl.com/y6j9u4do 

But you should of course submit your own comments on those points of interest to you.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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