Minesite Weekly Comment

07 February 2011
Minesite Weekly Comment

Charles Wyatt on the FSA nanny state

This article was posted on www.minesite.com

It is time retail investors stood up for themselves and stopped being patronised by the Financial Services Authority. The chairman of this body is Lord Adair Hunter who is an honours hunter from way back. In the late 90s he was boss of the CBI which is a talking shop claiming to speak on behalf of British industry. In 2008 he became chairman of the FSA - the same year as he was appointed to the Climate Change Commission which sets out to glean maximum tax for the government on the back of a spurious scientific theory. Not a very convincing CV for a man who now claims to know everything there is to know about investing. His chief executive is Hector Sants who worked for more banks and brokers than you can wave a stick at before joining the FSA in 2004 as managing director of Wholesale and Institutional markets.

They are backed by an enforcement officer and no less than 11 non-executive directors who all agree with one voice that private individuals are too stupid to be trusted with investing their own money. Every impediment must be put in their way including refusing them access to research from brokers. Apparently one only becomes bright enough to see this work after passing an FSA exam. A bit like saying that no one should start a business in this country unless they have a degree in business studies.

The problem is made worse as far as private investors are concerned by the compliance officers employed by brokers who have the bureaucratic habit of putting their own zealous twist on any dictats handed down from above. A classic example can be found at two of the firms of brokers who distribute weekly comments on metals, minerals and junior mining companies. Neither makes any specific recommendations which could be so dangerous for retail investors, as the FSA tells us, but the compliance officer at one allows the notes to be published and the other does not. Make of that what you will.

When I was a broker a long time ago the compliance officer was the partner who brought least money into the firm. Now it seems to be the employee with least common sense, which reminds me of the occasion when a firm of brokers wrote a note on Cluff Mining two or three years ago. We were refused permission to publish, but a telephone call to Algy elicited the following response, "you can put the bloody thing up wherever you want. I paid for it after all". The broker got its own back in a pathetic way by not sending us any more research.

Let's face it, there is no such thing as privacy in this age of the Internet as Wikileaks has proved so efficiently to the US Government. Nevertheless if anyone bothers to look at the announcement last week by the Canadian listed company Great Basin Gold that it had raised C$75 million by a bought deal it has the warning, 'not for dissemination in the United States.' Why not, for God's sake? Are US shareholders in GBG not meant to know what is going on in their company?

As common sense is going out of the window so fast it is pertinent to ask Messrs Turner and Sants what they make of horse racing. Are they going to stand in the car park at Cheltenham next month with all their NEDs in a row and tell racegoers to disregard any tips they may have received. It is easier, after all, to lose money on a horse than on a share and the odds are tipped in favour of the bookies anyway.

Maybe a special exam on horse racing will be next on the agenda, though it is surprising to find that betting, a huge financial business in this country, gets no mention on the FSA website. Is this august body happy to leave supervision of the betting industry, which has an annual turnover just about equal to retail investment at around £9 billion, to the Gambling Commission. Put the two together and they could introduce even more unhelpful rules between them as the Gambling Commission cannot plead innocence in this regard. Speaking of which, Messrs Turner and Sants have a cracker in the offing if anyone can understand the obscure language used by the FSA.

They propose "prohibiting the sale of specific products to specific customer segments to protect them from detriment and for their own protection." I'll leave readers to mull over this one as the patronising attitude of the FSA to private investors is a subject on which we will comment at regular intervals. In the meantime anyone with pertinent comments should send them to cwyatt@assay.demon.co.uk

By Charles Wyatt