The risible sanction imposed on Wonga for harassing borrowers through fake law firms shows how little has changed in the City.
If a law firm simply invented companies, or other legal practices, and deployed their names to boost its profits and hoodwink clients, we know what the SRA would do. The regulator would give the partners a stern ticking-off, tell them to pay token compensation and ask them not to do it again (there’s a good chap). And the names of those responsible would be kept secret.
One can only hope so. After all, the solicitors regulator would only be emulating the Financial Conduct Authority, exemplar of ‘outcomes-focused’ regulation, in the Wonga case that we report today.
As a former City editor, I am long acquainted with the laughably inconsequential sanctions imposed on financial services firms which behave badly, if not criminally. FCA predecessor The Financially Supine [Services] Authority truly earned its Private Eye nickname.
But the £2.6m compensation order imposed on the controversial payday lender is even more risible than usual. Wonga posted annual profits of £84.5m last time out; in that context £2.6m might reasonably by regarded by Wonga’s peers as a legitimate (if grubby) cost of doing business. It is chump change – and the customers are the chumps. What message is being disseminated here?
There is no suggestion, of course, that Wonga is not suitably contrite, despite being a repeat offender – in 2012 it was warned by the Office of Fair Trading after it sent letters to customers accusing them of fraud. But so what? Burglars are sorry, sometimes.
The company’s customers are some of the most vulnerable (and financially illiterate) in society. But they are still prey. Whoever was responsible doubtless took a punt on the fact that borrowers wouldn’t google these ‘law firms’ to check they actually existed (for want of a computer, perhaps).
The targets of this aggression will get fifty quid for being harassed by the imaginary lawyers; which is not a lot, though it would certainly grow quickly if put on the street at 5,000% interest.
Wonga escaped a potential fine or worse because the FCA only started policing payday lenders in April 2014, and these practices occurred while the now-defunct Office of Fair Trading (OFT) was in charge. So that’s all right then.
But who’s been sacked? Has the chief executive or chair, or another director, taken direct responsibility and resigned? Are criminal charges pending? Who’s being named and shamed, and/or cast out of the financial services sector? Is a criminal investigation even under way?
We have partial answers to some of these questions. It all happened a long time ago. And a criminal probe will delay the establishment of a compensation fund. And the chief executive is newish and interim – nothing to do with him. All true, but…
When the FCA took over from the FSA in April last year its chief executive famously told the regulated community they did not need to be afraid of the new watchdog. On the evidence to date, he has been true to his word.
Not one senior executive has been removed from a major financial services firm, even when substantial wrongdoing has been uncovered and multi-million-pound fines have been imposed on shareholders. It seems that that while the middle letter may have changed, not much else has.
Even if you accept the FCA’s line that it could not take further action against Wonga because it all happened on the OFT’s watch, questions remain about the action it takes when it does have the power. Just this month, the FCA issued fines against two banks for misleading financial promotions. Not one executive was removed or barred from the industry as a result.
Another bank is being forced to write to all of its customers, because the regulator believes many could have been given unsuitable investment advice. Despite the fact that this bank is a serial offender (it was previously fined), guess how many executives have been brought to book, in round figures (very round).
If the UK does not want to target executives who preside over - and profit from - bad practice (and it doesn’t, does it?), then perhaps Europe might give it a shove. Speaking in London on 4 June, Steven Maijoor, chair of the European securities and markets regulator, said he wants boards to be held properly accountable. The message was well received: Maijoor was addressing the Joint Consumer Day of the three European financial regulators.
In the meantime, financial services executives should keep a close eye on a case currently under way in Germany. Six board executives there face fines and possible jail terms for their part in a bank’s near collapse.
Not the British way, old boy.
Paul Rogerson is Gazette editor-in-chief
Andrew Caplen, Law Society vice president, appeared on the BBC’s Newsnight programme last night to discuss the legal and consumer aspects of the Wonga case. Watch the broadcast.