FSA under attack at Thomas tribunal

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The Independent Online

The Financial Services Authority once again found itself on the back foot over its enforcement process yesterday, as questions were raised over the fairness of its powers to grant and withdraw authorisation for individuals to work within the industry.

The Financial Services Authority once again found itself on the back foot over its enforcement process yesterday, as questions were raised over the fairness of its powers to grant and withdraw authorisation for individuals to work within the industry.

At the opening of the Financial Services & Markets Tribunal hearing of David "Dotty" Thomas - one of the architects of the split-capital investment trust industry - Michael Blair QC, representing Mr Thomas, revealed the FSA had prevented his client from re-entering the industry last year, despite admitting it had no evidence against him.

After leaving his former employer, Brewin Dolphin, at the start of 2003, Mr Thomas reapplied for FSA authorisation when he was offered a job at Brook Partners, a London-based financial advisory boutique, last summer. Four months later, the FSA informed Mr Thomas that it would not approve his application, as he was being investigated as part of the regulator's inquiry into possible collusive activity in the split-cap sector.

David Mayhew, representing the FSA, said while the regulator had not come to a conclusion that Mr Thomas was not "fit and proper" to work in the industry, it was also unable to prove that he was, leaving it no choice but to reject his application.

However, a tribunal member said it seemed unfair that whilst individuals who are under investigation but who are already authorised do not have their authorisation removed, those who are making a new application are automatically rejected.

Mr Blair said the FSA had been looking for scapegoats in its split-cap investigation. "The FSA is a schoolmaster and it thinks that it has smelt tobacco smoke on the school bus on the way back from a school match," he said. "And it's chosen to punish one of the boys. But there's no ... evidence of smoke ... and it could have been the driver. There's no evidence to connect this particular schoolboy to any smoke."

Mr Blair also said that in taking four months to reply to Mr Thomas's application, the FSA breached the Financial Services and Markets Act, which states specifically that applications must be handled within three months. Tribunal memberssaid it needed to be considered whether this breach should have any consequences for the FSA, and what it should mean for Mr Thomas's case.

Mr Mayhew said it would not be reasonable to assume that the FSA's breach should mean Mr Thomas was granted authorisation automatically. He said the Act was a detailed piece of legislation with one of its primary objectives being to protect consumers. Hence it would be against the spirit of the legislation to authorise an individual that the FSA had concerns about, simply because it had breached a time rule.

The outcome of the hearing is likely to also decide another tribunal case, which is waiting to be scheduled. Alan Kerr, the former head of investment trusts at Legg Mason Investments, also had a recent application for authorisation rejected due to his involvement in the split-cap industry. He is working for Premier Asset Management in a non-regulated capacity but was looking to move into an authorised part of the business.

Mr Thomas's hearing concludes tomorrow, with a decision expected in a few weeks.

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