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1. Review
Review from Business Opportunity Watch Rating Reviews, October 2007 Issue 8

2. Editorial Postscript of 13th September 2008

3. Events after October 2007

Page Two

4. BOW Letter to Jonathan Phelan of the FSA

5. Can plot owners get a refund from their banks?

6. FSA Reply dated 5 November 2008

7. BOW Reply dated 31st December 2008

4.BOW LETTER OF 8TH OCTOBER 2008 TO JONATHAN PHELAN OF THE FSA

Mr. Jonathan Phelan
Retail Enforcement
Financial Services Authority
25 The North Colonnade,
Canary Wharf,
London
E14 5HS

Dear Mr. Phelan

UKLI Limited
Request for an explanation of the FSA's role
Suggestion for how to protect the public in future from dubious unregulated investments

Business Opportunity Watch is an online magazine which analyses and assesses all manner of earnings opportunities which are advertised to the public, such as business opportunities, non-FSA-regulated investment opportunities, and opportunities for betting on the financial markets, on the horses etc.

A reader asked for BOW's opinion on UKLI last year. After correspondence with the company and research, the review was published in the October 2007 issue of BOW, rating it zero out of ten. Copies of the correspondence were sent to Greg Mulholland MP, since he had an interest in the matter, but the only reply was a brief acknowledgment.

Request for an explanation of the FSA's role

Having now looked into what has happened since October 2007, there are grave concerns about the FSA's part in this affair which require an explanation.

You can see the whole review of the company's scheme and the subsequent events by copying and pasting this link into your browser window:

http://www.businessopportunitywatch.com/BOW Review of UK Land Investments Group.htm

You can see that the review concludes with the statement that the real culprit of the UKLI tragedy is the FSA itself.

Here is a summary of the questions arising for the FSA:

1. The most fundamental question is why did you not prosecute the directors or petition for the company to be wound up straight away for having run a scheme which was a Collective Investment Scheme up to March 2006? Why did you instead do the company the favour not only of allowing them to come up with an alteration to their scheme to turn it into a non-Collective Investment Scheme but also still failing to prosecute for the clear contraventions pre-March 2006?

2. According to the Administrator's Paragraph 49 Statement, even for the post-March 2006 scheme, "However, the assertion by the FSA was that in practice plots were still marketed to individuals under the same basis, in that the Company would continue to seek planning permission for the entire site, and considered that the Company was therefore still operating illegally as a CIS". So why did the FSA not prosecute for the post-March 2006 scheme in April 2006?

3. Do you have any comment on Bally Chohan's assertion in his Statement of Affairs that "In early 2006 leading counsel advised UKLI to change its business model and confirmed that the new model was not a collective investment scheme". Have you seen this advice?

4. All the indications are that UKLI's post-March 2006 scheme was not a collective investment scheme because once the plots had been sold the company washed its hands of them. Does the FSA hold evidence to the contrary? And, if it does, why was action not taken much sooner?

5. Why, through the medium of the Administrator, is the FSA now asking for evidence of the way in which UKLI marketed its scheme? - According to the legislation, false claims about the way a scheme worked in practice would not turn a non-Collective Investment Scheme into a Collective Investment Scheme. - BOW's research has not turned up any evidence that UKLI ever obtained planning permission for anything, and has found only one reference to any effort to obtain planning permission. This was in Nigel Walter's letter of 13 November 2006 to Greg Mulholland, M.P. in which he said that "we actually have a project going forward to a Planning Committee in the next month" for a "relatively small piece of land with some derelict buildings". No doubt this application for planning permission was on UKLI-owned land.
   
   Furthermore, if this was the evidence you needed to close the company down, why didn't you obtain it yourself at a much earlier stage?
   
   If you believed that the scheme was marketed in a misleading way, why didn't you pass the case to the Office of Fair Trading with a suggestion that they might consider issuing a Stop Now order or pursuing an action under the Control of Misleading Advertisements Act.

6. Surely there would have been a good chance of success for legal action on the basis of misleading advertising on two fundamental points for which the evidence was in black and white on the company's web site i.e. firstly, that the whole tenet of the company's advertising was that the land they sold had a good chance of getting planning permission (which it demonstrably did not) and secondly, that the company would obtain planning permission on the land it retained - which it never did, and probably never tried to because it knew that it would fail and this would damage its marketing.
   
   Obviously, there's not much point in having all this excellent consumer protection legislation if it is not used when it should be.

7. Also, from a practical angle, surely you must have been aware of the point made in the review that - regardless of the chances of success - the mere threat of publicity from action under the Control of Misleading Advertisements Act or from the imposition of a Stop Now Order would have been sufficient to stifle the UKLI scheme?

8. Could you please also confirm that the FSA's lack of action was not influenced by the fact that the head of the UKLI Strategic Planning Team, Brian Smith BA (Hons) MRTPI - who holds the unusual view that land on a flood plain "has a very good chance of being re-zoned" for residential development - was, according to the website of Regents Land at www.regentsland.com, "a member of the Department of Trade & Industry's Task Force on sustainable transport futures".

One might assume that the explanation for the FSA's conduct regarding UKLI was that they had a duty to put corporate interests above those of consumers.

The FSA's statutory duties are contained in Section 2 of the Financial Services and Markets Act 2000. This says that the FSA must "so far as is reasonably possible, act in a way which is compatible with the regulatory objectives" and there are four regulatory objectives as follows:

(a) market confidence;

(b) public awareness;

(c) the protection of consumers; and

(d) the reduction of financial crime.

Clearly, then, duties towards consumers are a central part of the FSA's statutory duties, and no doubt the company's creditors are anxious to hear your explanation of the FSA's failure in this duty in the case of UKLI.

The FSA waited for two years while the scheme continued to suck in money from hoodwinked investors. You must have known that UKLI was likely to go bust early in 2008 because the bank was unlikely to renew its £5 million loan facility when it came to the end of its term on 28th February 2008. Finally, the glorious day arrived when you got the tip-off that the bank was about to apply to the court for the appointment of an administrator and so you slammed in your petition on 1st April 2008.

When the petition was granted by the court you followed it up with your Press Release of 4th June 2008 which contains false and misleading information. The title is "FSA seeks to close down UK's largest illegal 'landbanking' scheme" but you fail to explain that it only grew so big because - although you had known about it for two years - you did nothing and just let it grow.

Your Press Release goes on to say, "UKLI's business was illegal because it operated as a CIS and should have been authorised by the FSA". This is misleading because it implies that it is a fact that UKLI operated as a CIS but it isn't a fact at all. It has not been subject to a court determination and it is merely the FSA's opinion ... and it's difficult to believe that you held this opinion seriously since the FSA didn't do anything about it for over two years.

You falsely assert that the FSA "will not hesitate" when they hesitated for more than two years and that the FSA "will continue to do everything possible to keep people safe from illegal schemes" when they did nothing for two years in the case of UKLI.

Hanging about until a creditor is about to appoint an administrator hardly counts as protecting the consumer at all.

Suggestion for how to protect the public in future from dubious unregulated investments

According to the research paper produced by the Office of Fair Trading in December 2006 "Research on impact of mass marketed scams", each year consumers lose about £490 million to high risk investment scams and £160 million to property investor scams.

Obviously, most of these scams do not come within the remit of the FSA at all because there is no legal requirement for them to be regulated under the Financial Services and Markets Act.

One possibility would be to change the law so that some of these schemes were regulated. However, this would no doubt take a lot of time and be expensive, not only to put it in place but also for the on-going regulation.

Instead, here's a simple, cheap solution.

It may sound obvious to state that very few people would be caught by investment-type scams involving the purchase of an asset if they took independent, pre-purchase advice on the valuation. However, it's worth considering the likely reasons why consumers generally don't take such advice. These reasons are a mix of the following:

1. The most important reason is probably that the sophistication of the marketing material and/or the skill of the telephone salesman has already succeeded in making the consumer totally convinced of the value of the investment.

2. Also, some schemes - like UKLI - concentrate their publicity on their highly-qualified in-house valuation expertise. It does not occur to the average consumer that he cannot rely on these: to the average consumer, a valuation given by a qualified professional is the correct valuation. The reality is that the consumer can't rely on the company's valuations because these valuation experts are not acting for the consumer - they are acting for the company as the vendor. It is therefore to be expected that the company instructs its experts to produce a high valuation.

3. Most people want to reduce "acquisition costs" and valuation advice tends to be regarded as simply a cost which has no benefit to them, rather than as a service which is good value in its own right. I suppose that this viewpoint arises from the residential property market where it's often easy for the average person to get a good idea for themselves of the value of the property they wish to buy, because it's in a street of similar properties or on an estate of similar properties. This is most unfortunate, because widely-marketed non-regulated investment offers are always in specialist markets (e.g. non-listed shares, fine wines, art, plots of land on a green belt site) which demand individual valuation.

All that's needed in most cases is something that will prick the bubble of the inflated assertions of the sales material or the salesman - just enough to destroy the dream image which would otherwise be created, so that the consumer keeps one foot on the ground and realises that he needs to find out more about it first.

This could be achieved with a Statutory Notice - along the lines of the statutory notice required for the multi-level marketing schemes under the Trading Schemes Regulations - to be displayed on all marketing material for unregulated investments and also on the order form. This could be worded along the lines of the following:

STATUTORY NOTICE
This investment is not regulated by the Financial Services Authority and is not covered by the Financial Services Compensation Scheme.  The price may be higher than the fair market value. The government's advice is that purchasers should protect their own interests by appointing their own independent valuer and their own independent legal advisor.

In general, it is only those investments which are marketed on the basis that they are likely to go up in value which charge more than a fair market value for them in the first place.

However, it would be counter-productive to include the statement, "There is no guarantee that the asset will go up in value" in the Statutory Notice because all consumers know this already and it doesn't deter them because they live in hope; so it would just reduce the overall impact of the Notice.

By contrast, nobody wants to pay more than fair market value at the outset.

The difficulty would be in arriving at the definition of schemes required to carry such a Notice. However, this shouldn't be insurmountable. It could, for example, state that schemes are caught only if they market assets with claims about their potential increase in value, in which case the Statutory Notice needs to be displayed next to the claim and also on the order form.

Obviously, there would need to be a number of exemptions (e.g. for FSA-authorised persons marketing unregulated collective investment schemes).

The fine wine market is a good example of a market where reputable sellers are constantly bedeviled by a stream of short-lived companies making untenable claims about the investment potential of their wines. (There's a long list at www.investdrinks.org/directory.htm) If you go to Google and key in the search terms "fine wine investment" you will see a mix of the good, the bad and the ugly in the results. You will find that the reputable suppliers make very few claims about the investment potential of their wines, or none at all. Other companies carry grandiose claims, including price trend charts.

The reputable companies should be happy for such a Statutory Notice to be introduced because it would reduce the unfair competition they face from companies which make big claims about the potential increase in value of their wines. They, like their competitors, would then be free to choose whether to include no such claims in their marketing material - in which case they would not need to carry the Statutory Notice at all - or to include such claims with the Statutory Notice.

Unlisted or bargain-basement shares are another market frequented by dubious operators. They are often based overseas so there would be a problem of enforcement. Currently, though, the situation is not helped at all by the fact that these firms are not breaking any laws because it's only UK firms which need to be authorised and regulated by the FSA.

Under the proposal for a Statutory Notice, these firms would be breaking the law if they made claims about the potential increase in value of the shares they were selling and did not include the Statutory Notice both on their marketing material and on the order form.

The FSA has a list of overseas unauthorised firms who market shares to UK residents, so they could write to them to notify them of the new requirement for a Statutory Notice. Of course, some of them might simply ignore it. Even so, the requirement for a Statutory Notice would help to curb such schemes for the following reasons:

1. Any consumer who received a prospectus for shares being sold by an overseas firm and who queried it with Trading Standards or the FSA could be given the straightforward answer that if the offer does not carry the Statutory Notice then it's illegal in the UK. Few consumers would want to have anything to do with an offer which is clearly illegal. This is far better than the current position where the consumer has to be told that the offer is not illegal, but there is no cover from the Financial Services Compensation scheme because the firm is not authorised in the UK.

2. Through consumer columns in the newspapers etc, it would not take long for consumers generally to become aware of the legal requirement for the Statutory Notice on the marketing material of offshore share touts and to routinely discard offers which did not carry it.

This proposal is not really an FSA matter, but is included in this letter because UKLI is a graphic example of a disaster which would never have happened on such a massive scale if a Statutory Notice along the lines of the above had already been in force.

Copies of this letter are being sent to the current chairman of the FSA Consumer Panel - David Lipsey, and also to the Director General of the Office of Fair Trading and to Greg Mulholland MP in the hope that serious consideration will be given to the proposal.

Yours sincerely
Marian Owen
Editor of Business Opportunity Watch


5. CAN PLOT OWNERS GET A REFUND FROM THEIR BANKS?

If you paid by credit card then the answer is yes.

It is important to note that you have six years in which to contact your bank for a refund. I mention this point because in the past I have heard of some banks who wrongly tell their customers that the period is only six months and they are too late.

Payment by Credit Card
Section 75 of the Consumer Credit Act 1974

If you made any payments such as a deposit for the purchase of your plot, or a further instalment payment to UKLI with your credit card for purchase of your plot, then you should be able to get a refund not only of this payment but of THE WHOLE VALUE OF THE ENTIRE TRANSACTION, provided that the value of the entire transaction did not exceed £30,000.

This protection only applies to credit cards - it does not apply to any card where your monthly bill has to be settled in full, such as debit cards or American Express or store cards.

(N.B. Unfortunately, the protection for payments by Debit Card (as distinct from purchases by Credit Card) under Regulation 21 Consumer Protection (Distance Selling) Regulations 2000 does not apply to purchases from UKLI because the Distance Selling Regulations do not apply to a purchase of land.)

For purchases by credit card, under section 75 of the Consumer Credit Act, each transaction to which the supplier (i.e. UKLI) has attached a cash price is treated separately in looking at whether the limit of £30,000 is breached. So if you bought three plots priced at £18,000 each, and you paid a deposit of £3,000 in one lump, being 3 deposits of £1,000 for each plot, then you could claim a refund of £54,000 from your bank.

Section 75 of the Consumer Credit Act 1974 says that where you have a claim against a supplier for breach of contract or misrepresentation you can choose whether to make a claim against the supplier or against the bank which issued your credit card. In the case of UKLI, it would normally be preferable to choose to make a claim against the bank.

Here's the link to a suggested pro-forma letter.

And here is a link to some further information about section 75 from the Financial Ombudsman.

Be prepared for the fact that the first reply you get from the bank might be a standard brush-off letter denying you a refund. If this happens, then you need to write to them again, by Recorded Delivery this time, telling them that they don't seem to have looked at your case properly, and could they please now do so to avoid your needing to make a complaint to the Financial Ombudsman. If the bank replies with a further brush-off then reply to the bank again by Recorded Delivery to tell them that you are not satisfied and that you will give them 14 days to refund you, failing which you will make a complaint to the Financial Ombudsman.

Here is the link for the PDF form you will need to print off and fill out and sign to send to the Financial Ombudsman if your bank refuses you a refund.


_________________________________
 

6. FSA REPLY DATED 5 NOVEMBER 2008

Dear Ms. Owen

UKLI Limited
Thank you for your letter of 8 October 2008. I note the concerns that you make (sic) in your letter and on your website, www.businessopportunitywatch.com and have considered the points that you have made.

You maybe (sic) aware of the statutory restrictions, under section 348 of the Financial Services and Markets Act 2000 (the "Act"), which limits (sic) the FSA's ability to disclose confidential information. To the extent that I am able to (within the confines of those confidentiality restrictions) I will outline the background of our involvement with UKLI Limited ("UKLI") and respond to the points raised in your letter.

Background
UKLI operated a "landbanking" scheme in which it acquired sites of land which it believed had development potential, divided these sites into small plots (each approximately 400 square meters) and sold them to members of the public. UKLI held itself out as having a specialist planning department which would work to obtain planning permission for the site as a whole, following which the value of the land would increase, with the plot owners realising a benefit on the intended sale of the site to a developer.

The FSA had notified UKLI that its landbanking scheme fell within the definition of a Collective Investment Scheme ("CIS") as defined in Section 235 of the Act. As you are aware, the formation, promotion and operation of a CIS is a regulated activity for the purposes of the Act and its subordinate legislation. The FSA notified UKLI that the operation of a CIS, without authorisation by the FSA, amounted to a breach of the general prohibition (section 19 of the Act) and was a criminal offence (section 23 of the Act). The FSA also notified UKLI that the investors, who had invested in its landbanking scheme to date, would be entitled to recover any money paid pursuant to the scheme and/or recover compensation for any loss sustained by them pursuant to section 26 of the Act (the "Section 26 Rights").

The FSA Winding up petition
On 1 April 2008 the FSA applied for a winding up petition against UKLI on the basis that: (i) UKLI had carried on and was carrying on, a regulated activity in breach of the general prohibition within the meaning of section 367(1) of the Act; (ii) UKLI was unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986; and (iii) it was just and equitable that UKLI should be wound up. On 3 April 2008 the FSA was granted a freezing and restraining order which prevented UKLI from dissipating its assets and continuing its landbanking scheme in breach of the general prohibition.

The appointment of the administrators
On 22 April 2008 the Clydesdale Bank Plc, a secured creditor of UKLI, appointed Lee Manning and Carlton Siddle of Deloitte & Touche LLP as administrators of UKLI. The administration of UKLI is ongoing.

Action by the FSA
Whether a landbanking scheme is in fact a CIS, is a complex factual matter which requires a careful and detailed assessment of the particular scheme and the manner in which it is being operated. It is possible for a landbanking scheme to sell land and seek planning permission without falling with (sic) the definition of a CIS and it is therefore open to companies to structure their landbanking schemes in such a way that they do not fall within the definition of a CIS.

Accordingly, the FSA will ordinarily allow such operations an opportunity to regularise its landbanking scheme (sic) where appropriate.

Where such regularisation is not possible or there are other concerns regarding the landbanking scheme, the FSA will consider presenting a winding up petition of the company operating the scheme to the Court to prevent a continuing breach of the general prohibition.

The continuing objective of the FSA is to ensure that the investors' Section 26 Rights are properly recognised and offered to those who invested in UKLI's landbanking scheme. It is, however, unlikely that there will be sufficient funds for the investors to recover their investment.

Press Release
It is incorrect to say that the FSA press release of 4 June 2008 contained misleading information. The FSA considered that the UKLI scheme was a CIS following the assessment of their particular scheme, statements made by UKLI to the FSA and the manner in which it was being operated. The FSA continues to pursue companies which offer unauthorised and illegal services. I am unable to respond in any more detail to your points that you have made on pages 2 and 3.

Statutory Notice
I thank you for including your proposal of the statutory notice for un-regulated investment schemes in the letter. As you correctly note, the proposal is not really one for the FSA.

Please do not hesitate to contact me should you have any further queries.

Yours sincerely

Jonathan Phelan
Head of Department - Retail
Enforcement Division

_________________________________

BOW REPLY DATED 31 DECEMBER 2008

Mr. Jonathan Phelan
Retail Enforcement
Financial Services Authority
25 The North Colonnade,
Canary Wharf,
London
E14 5HS

Dear Mr. Phelan

Thank you for your reply of 5th November 2008. However, it is disappointing that your letter gives no explanation of the FSA's disgraceful conduct in this affair i.e. the fact that the FSA sat on it for two years while the scheme sucked in a further £35 million from unsuspecting members of the public

Specific comments on your letter are as follows:

1. Whether a landbanking scheme is a CIS is a factual matter, but it's not complex

Your letter says, "Whether a landbanking scheme is in fact a CIS, is a complex factual matter". According to the legislation, however, it's a factual matter but it's not complex: it's just a case of answers to the following three questions of fact:

1. Is "the purpose or effect of [the scheme] to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income"? (section 235(1)) If the answer is "yes" then it could be a CIS depending on the answers to further questions and you go on question 2 below.

2. Do the participants in the scheme "have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions"? (section 235(2)) If the answer to this question is "No" then it could be a CIS depending on the answer to question 3 below.

3. Are "the contributions of the participants and the profits or income out of which payments are to be made to them ... pooled" and/or is "the property ... managed as a whole by or on behalf of the operator of the scheme"? (section 235(3)) If the answer to this question is "yes" then it's a CIS.

UKLI was not operating a CIS after March 2006 because not only was the answer to question 2 above "Yes" but also the answer to question 3 was "No".

If your department regards landbanking schemes as too complex for them to handle, then perhaps in future they should be passed to another department who can handle them?

2. FSA's dereliction of its statutory duty to consumers

As noted above, the FSA's statutory duties are contained in Section 2 of the Financial Services and Markets Act 2000. This says that the FSA must "so far as is reasonably possible, act in a way which is compatible with the regulatory objectives" and there are four regulatory objectives as follows:

(a) market confidence;

(b) public awareness

(c) the protection of consumers; and

(d) the reduction of financial crime.

Your letter gives the impression that you think that these regulatory objectives don't matter very much. According to your letter, it appears that you think that it's more important to take no action in the hope that a company can amend its scheme so that it's no longer a CIS. You say:

"It is possible for a landbanking scheme to sell land and seek planning permission without falling with (sic) the definition of a CIS and it is therefore open to companies to structure their landbanking schemes in such a way that they do not fall within the definition of a CIS.

Accordingly, the FSA will ordinarily allow such operations an opportunity to regularise its landbanking scheme (sic) where appropriate."

In the case of UKLI, the "opportunity" given by the FSA to UKLI lasted for two years, during which time the company sucked in approximately a further 35 million pounds from members of the public.

3. Misleading FSA press release of 4 June 2008

You say in your letter: "It is incorrect to say that the FSA press release of 4 June 2008 contained misleading information". However, it's difficult to see how anyone could regard this press release as not being misleading when it contains the following quote from you ...

"The FSA will not hesitate to pursue companies like UKLI which offer unauthorised and illegal services which put such investments at unnecessary risk. We will continue to do everything possible to keep people safe from illegal schemes that deny them their right to complain and get compensation when things go wrong."

... whereas the truth of the matter is that the FSA hesitated for two years to do anything at all in the case of UKLI to "keep people safe".

Will the question of whether UKLI was operating a CIS ever be determined by a court?

The likely answer to this question is no - unless the FSA get a move on.

The Progress Report attached to the letter dated 21st November 2008 from L A Manning of Deloitte & Touche LLP, Joint Liquidator of UKLI, to the creditors says as follows on page 14:

"It should be noted that it remains the FSA's contention that UKLI was operating as a CIS without authorisation at all times. We understand from the FSA that UKLI have admitted that they were operating a CIS without authorisation before the purported change of their business model in March 2006. This will mean that all investors investing in UKLI before this date can submit a claim under section 26 of the FSMA. The matter yet to be determined is whether UKLI were operating a CIS after this date.

However there are no resources within the estate at present to determine this by way of a Court hearing, and the only funds available to potential creditors and unsecured creditors are those held within the estate. We are currently in discussions with the FSA as to a mutually acceptable and cost effective method of implementing this process, which as explained in previous sections of this report is subject to funds being available to distribute to unsecured creditors."

On the first page of his letter, L A Manning clarifies the funding point as follows:

"We trust you will appreciate that if there are no funds for the unsecured creditors the determination of this matter will not be a worthwhile exercise."

These "discussions" have already been going on for six months and have apparently got nowhere. Why is this?

The problem is that if they carry on getting nowhere for another six months then the question of whether or not UKLI was operating a CIS after March 2006 will no doubt indeed be academic. Administration costs up to 15th October 2008 came to nearly a million pounds and, since the liquidators - Lee Antony Manning and Carlton Malcolm Siddle of Deloitte & Touche LLP - are charging the company an astronomical average hourly rate of £214 for "Assistants", these costs will continue to mount up.

This £214 an hour for Assistants is after a 10% reduction on Deloitte's normal charge out rates. However, this seems high even on their own figures since in their "Statement of Proposals Pursuant To Paragraph 49 of Schedule B1 of The Insolvency Act 1986" of 9 June 2008 they said that the normal charge for "Assistants/Support staff" ranged from £140 to £220 per hour to "reflect the different rates for staff in London and those from regional offices". With a 10% reduction, this means that the rate charged for UKLI work should be £126 if regional staff are used, or £198 for London staff - not £214.

Of course, these rates will have been properly approved, but they're still astronomical compared to the typical advertised hourly rate for clerical jobs in London of £15 an hour on job sites such as www.reed.co.uk, www.jobserve.com and www.totaljobs.com, as previously mentioned.

The facts of the matter in the UKLI case are that if the FSA had acted promptly as it should have done then the winding up could have been handled by a smaller firm with more moderate fees. Instead, by leaving UKLI to grow and grow, it could only be handled by one of the big four accountancy firms with their very high fees.

Final questions arising

I'm sure you would agree that part of an efficient functioning of the markets requires the FSA's policies and views to be clear, reasonable and public. I should therefore be grateful if you could answer the following two questions, which are generic questions so that the confidentiality restrictions of section 348 of the Financial Services and Markets Act 2000 won't prevent your answers.

1. How does the FSA's policy of favouring the company over the consumer by "ordinarily allow[ing] such operations an opportunity to regularise its landbanking scheme (sic) where appropriate" fit in with its four regulatory objectives? After all, a company which operates a scheme which is not "regular" has committed a criminal offence.
   
   It is astonishing to hear that FSA policy is not only to not prosecute such companies but to allow them the opportunity to carry on in business.
   
   It seems that this FSA policy flies in the face of its four regulatory objectives, as follows:
   
   a) market confidence - surely market confidence is reduced by failing to prosecute companies which breach the general prohibition?
   
   b) public awareness - I doubt that the public is remotely aware of this policy. If it is to be continued then I think it should be well-publicised. Also, the public clearly needs to be aware when a company is in the nether world of being given the opportunity by the FSA to "regularise" its scheme. This could be achieved by, for example, requiring the company to carry a notice on all its marketing material, until such time as the FSA has given it a clean bill of health.
   
   c) the protection of consumers - failing to prosecute companies which commit a criminal offence and allowing them the opportunity to continue in the hope that they can make their scheme legal without giving any indication to existing or potential customers of such companies is exposing them to risks which you know about, but which they don't - not protecting them.
   
   d) the reduction of financial crime - your softly-softly policy seems more likely to perpetuate existing crime and encourage new crime, rather than to reduce it.
   
   
2. The whole gist of your argument that UKLI was a CIS seems to be that, as you say in the third paragraph of your letter, "UKLI held itself out as having a specialist planning department which would work to obtain planning permission for the site as a whole".
   
   However, as noted by BOW in the first part of this report (link), the way that a scheme is held out to work (i.e. the way it is marketed) seems to have no bearing on whether or not a scheme is a CIS.
   
   The only factors which are relevant to determining whether or not a scheme is a CIS are the way it operates in practice e.g. under section 235 (2) whether the participants "have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions" and under section 235 (3) whether "the property is managed as a whole by or on behalf of the operator of the scheme".
   
   As a general point, and with no particular reference to UKLI, is it the view of the FSA that a scheme is a CIS if it markets itself as carrying out activities which would make it a CIS, regardless of whether or not it actually carries out any of these "CIS activities"? If so, what particular wording of statute or case law does this view come from?

Yours sincerely
BOW

Copy to:
David Lipsey, Chairman, FSA Consumer Panel

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Go Back to Page One

1. Review
Extract from Business Opportunity Watch Rating Reviews, October 2007 Issue 8

2. Editorial Postscript of 13th September 2008

3. Events after October 2007

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