Financial Regulation: a preliminary consideration of the Government's proposals - Treasury Contents

Written evidence submitted by Mr Alan Fiber


  Proposal that CPMA has power to supervise certain activities of registrars acting for stock-market listed companies, eg "rights issues", "open offers" and other corporate actions, where any individual can be disadvantaged by thousands of pounds, and that the Financial Ombudsman Service has power to adjudicate in disputes between individual consumers and registrar companies when invoked. Detail and reasoning is attached with this email.

1.  Contrary to general belief, activities of company registrars are totally outsid the ambit of the FSA and of FOS except to the extent that any act—additionally to registrars' work—as share brokers. One of the largest UK registrar companies has told me that it has around 1,200 basic staff, often heavily augmented by temporary staff, but that because they subcontract all share-broking activities, only one employee, with absence cover, is covered by FSA or FOS despite the great play they make in publicity seeming to apply to all their activities about being covered by the FSA and FOS.

  2.  Nearly every UK stock-exchange-limited company subcontracts registrar activities. Whether the tiny proportion of quoted companies handling their own such work might be exempted from this proposal for CPMS and FOS supervision, or be supervised under existing or amended company legislation could be discussed by experts.

  3.  All company registrars act in a quasi-judicial and quasi-financial capacity, where any decision can disadvantage an investor by thousands of pounds, yet there is no recourse except through the courts, and for that the investor may have their procedures and even evidence withheld by the alleged guilty party.

  4.  Every corporate action, eg "rights issue" or "open offer", has a deadline date and time for valid receipt of shareholders' election or instructions. Each applicant is required normally to enclose a cheque with his instructions, usually for some (or many) thousands of pounds, for buying additional shares according to the terms of the "rights issue", "open offer", etc. For each applying consumer, it is crucial whether his/her application is deemed to have been received before or after the publicised deadline. Rejection as "received too late" is costly for each applicant, in making available substantial money to meet their cheque additionally to loss of desired investment opportunity.

  5.  There are million of such corporate action nominations every year. Even a small proportion being wrong ascribed as received "too late" is a large number involved very large sums in total.

  6.  Consumers currently are seriously disadvantaged, usually powerless, when their application is wrongly rejected. Legal cases and other reliable documentary evidence have demonstrated that even mailing instructions and cheque "Recorded" or "Registered" delivery does not guarantee delivery, nor registrars' correct processing, on on time. It is precisely at these corporate action times that registrars require to recruit large numbers of temporary staff, with additional risks of administrative and processing problems and errors. Being outside FOS ambit, consumers' only recourse if through the courts, ie further costs, substantial delays, etc.

  7.  Where the consumer undertakes legal action, under present arrangements, procedures and even evidence can be withheld by the alleged guilty part, blatantly unjust. Detail in point 6 of "Recommendations" below.


  1.  That CPMA has power to supervise certain activities of registrars acting for publicly listed companies, eg "right issues", "open offers" and other corporate actions, where any blameless individual can be disadvantaged by thousands of pounds and that the Financial Ombudsman Service has power to adjudicate in disputes between individual consumers and registrar companies when involved.

  2.  Registrars, standard procedure is to stamp each application with "Received too late" or similar where that occurs. CPMA might decree such be applied by machine, incorporating security against improper or unfair use, perhaps evidencing date and time (or at least batch nunmber, etc) of stamping, for settling subsequent queries or disputes. An independent observer to verify this equipment is correctly set and working in each relevant snap inspection. Current practice appears to be such stamping by hand, without date or time, with no indpendent verification whatever of when stamp applied, which can be backdated after the consumer has complained about a genuinely-wrong rejection.

  3.  Given the quasi-judicial function of registrats and that its outcome can affect any shareholder by thousands of pounds, it is essential that at least one totally independent skilled observer is enabled to certify correct allocation of applications as "in time" or "too late". That will require agreement well beforehand by such independent observer that the registras' procedures, including staff supervision, timing equipment, etc are sufficient and operational. Snap inspections will be necessary during the period for receipt of applications, also immediately before and after deadline, and subsequently. More than one independent observer may be necessary, certainly desirable to minimise building too friendly a relationahip between observer and registrar staff and supervisiors. Appropriate observers, suitably instructed, might be provided by staff of probity seconded from eg london Stock Exchange, non-local off-duty (freelancing) JPs, bodies like UKSA, APCIMS, TISA, IMA, Proshare and perhaps CPMA, AITC, etc. Independent checks are necessary on possible conflict of interest or loss of independence for each individuals allocation to observing duty, Such bodies will welcome this demonstration they are safeguarding the interests of the investing public, their reason for existence in most instances.

  4.  CPMA to make compulsory under this regulatory powers, or at least to stress in their code of practice, that it is normal practice (as it is) that the name of directors be given on letterheadings, etc each annotated with all or major professional-body designatory letters to which each belongs, as evidence of probity and specialist professional knowledge (to top or lesser standards, to those able to assess such). This is espeically important for directors ultimately responsible on legal, financial and compliance matters. One might expect designatory letters to appear at every opportunity, as excellent advertisement for the firm and individual, yet some registrars appear to have gone to unusual lengths to hide this information, presumab ly to minimise risk of complaint ro professional bodies. All professional bodies stress to all members the desirabilty of using their designatory letters to the full. If for any good reason this recommendation is not actioned for eg letterheadings, surely it must be mandatory in at least one publicly-accessible source, eg annual Companies House returns of directors' particulars, given the quasi-judicial and quasi-financial nature of their work. Alternatively, the CPMA could rule that the names and professional qualifications of directors ultimately responsible for at least legal, financial and compliance matters be stated, in standard paragraph format, in locations they designate, eg letterheadings, brochures, websites.

  5.  CPMA to rule that registrars' standard procedure on any corporate-action nominating shareholder complaint, or request for verification of their application or instruction, be checked and answered in appropriate detail unless there is prima facie good reason not to. No longer admissible for registrar to respond "We are professional and our systems cannot make mistakes" or similar bland brush-of.

  6.  As with all financial organisations, registrars' telephones initially caution callers that calls may be recorded, etc. Where a complaining shareholder requests transcript of a conversation, eg for use in a court case, or to verify whether there are grounds for such a case, it is at present totally unclear to complainant whether ther elevant conversation was recorded or not, enabling refusal to supply the recording or its transcript, claiming it never existed, where factual evidence in the conversation is to the registrars' disadvantage. Since it is, at least currently, impractical for most private UK shareholders to record all potentially-relevant outgoing calls, this is an unsatisfactory position requiring improvement by the CPMA, perhaps in co-operation with the Data Commissioner's office. The public, not only shareholders, need transparency on whether a call is recorded or not, with failsafe assumption it is recorded if not otherwise stated, perhaps especially for calls on direct lines to senior management, and where calls initially answered on general customer lines are transferred to management.

  7.  Corrections to existing serious public disadvantages are needed even if relevant powers are to be exercised by any authority other than CPMA or FOS.

18 October 2010

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