Midas Financial Solutions Collapse

I beg to move,

That this House has considered the matter of the people affected by the Midas Financial Solutions collapse.

It is a pleasure, as ever, to serve with you in the Chair, Mr Stringer, and I am grateful to the Backbench Business Committee for allowing time to bring the matter before the House. I do so for a number of reasons, some to do with the people directly affected by the collapse of Midas Financial Solutions, but also because the case brings to us bigger issues that require attention and, potentially at some point, reform.

Another reason for bringing the matter to the House is that I know from my constituency casework that, bad though the situation around Midas Financial Solutions is, it is far from the only case. I have another such constituency case, although I will not refer to it as criminal proceedings are still live and it would therefore be improper to do so. However, the position of those investors in Midas Financial Solutions Ltd who took the legal action against Sense, the principal of Midas Financial Solutions, remains highly unsatisfactory.

Related to that position, it appears to me that the workings of the Financial Conduct Authority, and before it the Financial Services Authority, require close parliamentary scrutiny, particularly the inability to focus on the needs of the consumer, rather than the various other professional parties that come within its ambit. It is worth reflecting that, in this case—which forced the FSA to act in 2014, although it had been aware of much of it beforehand—it took until 2020 and court action by 95 of the investors for the FCA to apologise in writing. That illustrates the obstruction that seems to lie at the heart of much of the complaint handling by the FCA.

Finally, there are issues around the future pattern and shape of regulation. The law as it stands leaves us, effectively, with two tiers of protection, and I suggest that that requires to be addressed.

Today’s debate is the latest junction in a road that has represented six years of casework for me. I have been consulted with, worked with constituents who have lost tens of thousands of pounds—some have lost hundreds of thousands of pounds—and engaged with people throughout the north-east of Scotland, as well as Orkney and Shetland, as Midas Financial Services Ltd was based in Aberdeen. The managing director was Alistair Greig, who was convicted of fraud involving £13,281,671.25. For his role in the fraud, he was sentenced to 14 years’ imprisonment, which was reduced on appeal to 10 years. The fraud ran from August 2001 to October 2014.

The pretence at the heart of the fraud—that money was being placed in short-term deposit schemes with Royal Bank of Scotland for fixed periods—was essentially fairly simple, but this turned out to be, bluntly, a Ponzi scheme. We are not focusing on RBS today, but I will mention in passing that one of my constituents rather dryly observed that throughout the scheme RBS had demonstrated a quite remarkable lack of curiosity. The prosecutor at the trial said that Greig had used the funds from Midas Financial Solutions (Scotland) Ltd

“as his own personal slush fund.”

My constituents would prefer not to be named, as Shetland is a small community and it is not difficult to work out who has lost sums of this sort. I have worked closely with the group that organised and corralled the 95 investors to raise legal proceedings, and I pay tribute not just to my constituents, who have been dogged in their pursuit of the action, but also Colin Stewart, who was one of the main actors in bringing the group together.

We have to bear in mind that the sums involved are massive—tens or hundreds of thousands of pounds—and represent life savings or perhaps an inheritance. These are not investment bankers in the City of London who are just taking a bit of punt with last year’s bonus. These are massive amounts of money to the people involved, and it is money that none of the people to whom I have spoken could afford to lose. One of my constituents remains £80,000 out of pocket to this day.

I pay handsome tribute to some of the legal practitioners involved. Robert Morfee was the solicitor when I first became involved, and more recently it has been Philippa Hann, who has prosecuted the case for her clients in a way that reflects very well on the best traditions of the legal profession. My constituents have been very fortunate to have her on their side.

Alistair Greig operated as an appointed representative, which is a term of art, of Sense Network Ltd, a network of financial advisers. As I said earlier, this was actually a Ponzi scheme operated by Alistair Greig. The true nature of the scheme was eventually exposed by a whistleblowing notice in August 2014, leading to enforcement action against Midas and Mr Greig by the Financial Conduct Authority in September 2014. That investigation revealed that 279 members of the public had contributed £12.8 million to the scheme, but that only £379,000 remained at that point.

Proceedings were taken by 95 claimants against Sense as the principal and supervisor of Midas. They were unsuccessful both at first instance and on appeal, on the basis that it was held that the obligations of Sense for its appointed representative were strictly limited to the exact terms set out in the appointed representative agreement between them, which included which product providers Midas could use. Where Midas used a different product provider, that was held to fall outside the responsibility of Sense, despite the fact that the claimants were not made aware of that nor could they have discovered it from any publicly available source.

I want to labour this point for a second, because it is material. The FCA, and before it the FSA, made it clear in everything it ever said to members of the public that they should check the status of the people with whom they were doing business—there are online registers available for ready inspection. However, the truth of the matter is that whether or not the actions of the appointed representative are covered, as they should be by having a principal such as Sense Ltd, is something that someone coming in off the street to invest their money cannot know. Indeed, that ran to the very heart of the difficulties faced by those who invested with Midas Financial Services.

It was also disclosed in the course of the court proceedings that there were good reasons for Sense, the Financial Services Authority and the Financial Conduct Authority to know that Alistair Greig was dishonest and was not fit and proper to be registered and authorised by them. In fact, it was revealed that the Yorkshire Building Society had found him to be selling mortgages under false pretences. The management of Sense Network was aware of that but allowed Mr Greig and his firm to continue as an appointed representative of Sense Network.

The effect of the court’s decision was to create a two-tier system of protection for UK investors. The court upheld that the private contract between the principal and the appointed representative, not the publicly available information on the FCA register, defines the business for which the principal is responsible. Even though the customer would not know what the arrangement is between the principal and the AR, that arrangement will govern the acts for which the principal is responsible. As a result, the customer will be in the dark and potentially at risk—more so than if they had done business with the principal directly. Where the advisor is not an appointed representative but is directly authorised by the FCA, the consumer will be protected in relation to the business that it is permitted to undertake and which is listed in the publicly available register. If Midas had been directly authorised, the claimants would have been protected.

The judgment is relevant to any appointed representative acting outside its private agreement with its principal. The fact that the investment in this case was a Ponzi scheme is irrelevant to the decision that the judge made and the consequences for the general public. Any client of an appointed representative advised in relation to anything that falls outwith the agreement with the principal will leave the client without protection entirely, without their knowledge. In the Midas case, obviously the staff at Midas did not inform the claimants that the advice fell outside the agreement with their principal. One wonders whether they would have even understood the significance of it had they done so. The judgment now leaves consumers at the mercy of unscrupulous ARs acting in breach of their private agreement with their principal, for which the principal avoids liability despite the law providing for it to seek damages from the AR for breach of that contract. The principal can take action against the appointed representative, but the customer—the consumer—cannot.

As well as taking the court action, the claimants took a complaint to the FCA about the failure of its predecessor, the Financial Services Authority, to take steps to prevent Mr Greig from operating in the financial services sector. The process for authorisation requires a test to ensure that those accessing the public are fit and proper individuals. The test requires honesty, competence and capability, together with financial soundness. The regulator had three opportunities to identify Mr Greig as dishonest and to remove him from the industry before he was able to defraud it. The regulator did not uphold the complaints in respect of the first two opportunities, but it did expect that it should have taken further steps.

The judgment of the complaints commissioner overseeing the work of the FCA, which was published on 27 May 2020, is significant, and I want to draw the House’s attention to two parts of it. The first relates to section 348 of the Financial Services and Markets Act 2000, which details the policy on sharing information. The commissioner states:

“I have queried the FCA’s position on this, and it has explained that, while the general criteria by which decisions were and are made are not covered by s348, explaining how they were applied to a particular case is likely to involve breaching s348 because it may disclose confidential information received by the FCA.”

The protection in section 348 is all about protection for the FCA and those who are authorised, not protection for consumers. That is what I suggest requires some attention. The commissioner concluded:

“The view of section 348 is problematic, because it makes it hard to understand why the regulator has made decisions, and can lead to an erosion in public confidence. In your”—

that is, the claimants’—

“response to my preliminary report, you argued that you ought to be able to see any unpublished policies applying at the time in order to be able to respond. I have considerable sympathy with your point of view, but the fact is that for regulatory reasons the FCA considers that detailed policies of this kind should not be published. I invite the FCA to consider whether it might be more open about the historic policies of the FSA, but that is as far as I can go.”

As far as I am aware, it has never made any such explanation.

In relation to the information provided by the Yorkshire Building Society, the commissioner is blunt:

“I recognise that you—and many others—might be surprised to learn that the FSA considered that reports suggesting mortgage fraud should not necessarily be followed up. I was surprised when I learned this. The fact that a major building society felt it necessary to remove advisers from its panels because of concerns about their integrity might be seen as a good reason for the regulator to make significant further inquiries.”

That was information that went to the FSA in 2008. It did not act then, and did not act when further information was given to it in 2012. As a consequence, the activities of Alistair Greig were allowed to continue unchecked for at least six years. When Greig’s activities were eventually exposed, legal action was taken. Although the complainants were unsuccessful, it was held that there was eligibility as—I have lost the term of art; as a collective investment scheme, which would open the door to compensation under the Financial Services Compensation Scheme.

Most of those who suffered loss as a consequence of the activities of Alistair Greig were able to avail themselves of that, and many have been compensated in full. The fact is, however, that that route only came to light as a consequence of the legal proceedings that were taken by Colin Stewart and the 94 other investors. They would never have been able to make that claim to the FSCS, but for the fact that they took the court case, even though that was ultimately unsuccessful. The 95 are still out of pocket to a collective tune of £2 million in legal fees. My constituent has been left with an £80,000 shortfall for the money he invested. It seems wrong to me that, even where the FCA is entitled to make ex gratia payments, for fairly opaque reasons in this case, it has refused to do so. I call on the FCA, and hope the Minister will also use his office to impress on it the unsatisfactory nature of that.

Quite apart from the legalities, if the FCA acted so badly and inadequately that it had to issue a letter of apology in June 2020 to the people who had invested, but will not do anything to make good the losses sustained by my constituents and others in exposing conduct, which the FCA should have exposed, something has gone badly wrong. It is in that sense that the House should now have an interest.

It is clear to me from my dealings with Midas and other cases that the regulation of the financial services sector is enormously complex—far too complex for people entering the sector in good faith, with no experience or understanding of how it works—and it is not consumer-friendly. It is focused on protecting those charged with its regulation and the bodies that are regulated, rather than the consumers, who will ultimately be left out of pocket when it all goes wrong. That is what has happened with Midas Financial Solutions, and that is something that the Government now need to consider with some urgency.

We have spoken elsewhere in the House about the attitude that fraud is somehow a victimless crime—it is not as direct as housebreaking or crimes of violence. My constituents who are tens of thousands of pounds of their savings and hard-earned cash out of pocket would not agree with the assessment that fraud is a victimless crime. We pay the Financial Conduct Authority a lot to regulate, and we deserve better.

Just to clarify, the right hon. Gentleman said that the legal costs were nearly £2 million, whereas the figure I found was £1.5 million. Is he contesting the official figure or does he have further information?

I was given the figure by my constituents—of course, it was a collective action. Even if it was £1.5 million, it is still chunky money in terms of being left out of pocket and it still hits particularly hard. There is the financial and also the emotional cost to those who had to take the action to make the FCA do its job.

I absolutely agree with the right hon. Gentleman: it is a chunky figure, regardless of whether it is £1.5 million or £2 million. I just wanted to clarify whether he had additional information that I had not received. I thank him for his answer.

I have struggled this morning to resist the temptation to be drawn down into the weeds. I have had six years of dealing with this matter. The complexities, technicalities and minutiae are incredibly involved. I have learned more about the regulation of financial services than I would have believed possible or desirable, but the message for the House is fairly clear: the system is not working. It has left my constituents and others significantly out of pocket. But for the fact that they were prepared to take legal action, every one of the 279 investors would have been out of pocket. For that reason, the system requires further scrutiny by the Department.

Mr Stringer, I have taken rather longer than I intended. I await the Minister’s reply with interest.

Thank you, Mr Stringer, for allowing me to speak on this issue. I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on bringing it forward. As always, he set the scene very well for his constituents, who have lost out, and he was passionate in asking for answers to the questions he put forward. It is pleasing to see the Minister in his place. He always comes with a positive attitude to these issues. He understands them well and we look forward to his response. Hopefully, he can address some of the issues we have.

It is also a pleasure to see the shadow Minister, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), in her place. Like others, I want to put on record my thanks to her for her hard work and endeavours to bring home her constituent, Nazanin Zaghari-Ratcliffe, and others. That campaign has been marvellous. We all admire the hon. Lady very much, and we see her perseverance. If she is adding her weight to this debate, I am sure that will be enough to push it over the line— no pressure on the Minister. Again, I thank her so much.

The case of Midas Financial Solutions is disturbing to the extreme. My heart goes out to all those hard-working people who trusted a financial adviser and have lost their money. That was very well illustrated by the right hon. Member for Orkney and Shetland. From a 22-year-old to two people who have died, there appear to be almost 200 victims. Some of them lost a few thousand, but that was all they had. Those people invested thinking that it would make their money last for their old age. Unfortunately, it did not. Others lost almost £500,000. I have a number of questions for the Minister, but one is whether the families of those who died get compensation?

The sheer scale of the Ponzi scheme is mind-boggling, yet the shortcomings and the evidential base are well documented. People are out of pocket. In debates on other issues, the Minister has tried hard to respond, but we need to ensure that the investors who are most out of pocket—I think 95 is the final figure—can be reimbursed. What can be done to ensure that lessons are learned from what we are bringing to the attention of the Minister and the Government?

I can actually give the hon. Gentleman the figure now: it is £1,903,619.92.

There we have it. The hon. Member for Hampstead and Kilburn and I now know that the figure is £1.9-odd million in legal fees. They will pay that out of the same amount as those who did not pay into the court case will receive. We can understand the frustration of those who paid for these things to be chased up, given that others have the advantage of not having paid. There is an anomaly. Some lost out, but the legal fees then follow. Surely, the public purse should have paid, rather than people who have already lost every penny of their savings.

The head of a regulated company unscrupulously and fraudulently stole millions of pounds to furnish his lavish lifestyle. His own wife has been instrumental in helping the victims, and that is one of the good things that has come out of this, but her husband stole from his customers. Why has the body set up specifically to look into these things been so behind the door in fulfilling its role? How can we ensure that this loophole is removed so that people have full help and assistance in future? There are lessons to be learned that we can use for the future. We need to ensure that people who invest in these pension schemes do not find themselves out of pocket when the time comes.

The background article I read in The Courier highlighted the fact that the warning signals regarding this man were ignored or overlooked by the FCA. If they had not been, that may have prevented more people from being duped. What is being done to prevent these things from ever being overlooked again? People want the assurance and the confidence when they invest that the company they are dealing with is safe and secure. What has been learned by the Government and the Minister? What legal measures will be put in place to ensure this does not happen again?

I conclude by thanking the right hon. Member for Orkney and Shetland for bringing the debate forward. It is important that these issues are debated in Westminster Hall or the main Chamber. The right hon. Gentleman has been involved in these issues on behalf of others in the past, and we have spoken in many debates together. Our job is always to illustrate examples where, unfortunately, things have gone wrong, but I respectfully say to the Minister that his job and that of the Government is to ensure that these things do not happen again.

It is a pleasure to serve once again under your chairmanship, Mr Stringer, and to follow the hon. Member for Strangford (Jim Shannon). I wondered at points if he was looking over my shoulder at some of the things I was planning to say, so I will just have to find a different way of expressing them. I commend the right hon. Member for Orkney and Shetland (Mr Carmichael) for his determination in pursuing justice, truth and better outcomes and to prevent such things from occurring again, which he has demonstrated throughout his pursuit of this issue.

The main villain of the piece is obviously Alistair Greig, the managing director of Midas Financial Solutions. After the scale of his dishonesty was revealed in court, he was dubbed by the Aberdeen Press and Journal as the “king of the swindlers”. He defrauded over 180 victims, or 297 according to the Financial Conduct Authority, of close to £13 million. Most, but not all, were from the north-east of Scotland, and it was one of Scotland’s largest ever fraud cases, taking over two years to investigate.

Many investors—business people, retirees and young people starting out in life—were told their investments had grown, which encouraged them to invest even more, all the time believing that their money was safely tucked away and gathering interest. The only problem, as we now know, is that it was not. Their investments were not growing in the sense that we might understand; rather, they were unwittingly part of a Ponzi scheme, using the deposits of later clients to repay earlier deposits with interest and therefore burnishing the outward reputation of the scheme.

Self-evidently, all fraud is dishonest, but what really takes the breath away is the sleekit nature—don’t worry, Hansard, I will send a note later about “sleekit”—of how this particular fraud was perpetrated. In setting himself up as a gatekeeper, Greig pretended that he had access to a special deposit account at the Royal Bank of Scotland. That was pitched as being beyond the means of ordinary investors to access, except through him. He said that he could make that opportunity available to his more valued customers, taking people in with that confidence trick.

It is a pleasure to serve under your chairmanship, Mr Stringer. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for securing this important debate, and for the work he has done to highlight how his constituents, and others in north-east Scotland, were affected by the Midas Financial Solutions Ponzi scheme, and the overall awful impact that fraud has on communities across the country. It was a powerful and inciteful speech, and I learned a lot about the background of the case. Even though I had done some reading on it, I learned a lot more of the details, and the more I learn about them, the more alarming the case seems.

Fraud is an incredibly serious crime. It can destroy lives and tear communities apart. The hon. Member for Gordon (Richard Thomson) rightly pointed out that the tragic thing about the Midas case was that many of the victims knew each other, and even convinced others to invest. That is known as affinity fraud, which results in whole communities not only losing money but feeling guilty over having brought friends and loved ones into the scams. For the people affected who are watching today, I want to say that they have no reason to feel guilty. The only person responsible for this horrendous crime is Alistair Greig, and I hope the people affected know that.

It was heartbreaking to read about the victims of Greig’s fraud. Every Member who spoke on this, and so powerfully, has said that. I came across one story of an individual who invested their life savings in Midas to pay for their sister’s long-term dementia care and lost everything. To make matters worse, despite Midas being closed down at the end of 2014, the victims had to wait until July 2019, and the judgment of the Court of Appeal, before they were able to access the Financial Services Compensation Scheme.

Victims have been put further out of pocket after being forced to pay the legal costs for the various court cases, which we have already had a bit of a discussion on today. The hon. Member for Strangford (Jim Shannon) and I have both mentioned the huge amount of legal costs. That is something that no one should have to go through. That is why I was taken aback by the comments made by the Business Secretary last month when he suggested that fraud is a lesser crime, not experienced by people in their day-to-day lives. The Business Secretary should say that to Norman Masson, a self-employed builder who told the High Court in Edinburgh during Greig’s trial that he fell victim to fraud that caused him severe anxiety, losing over £30,000 that he was going to use to help his daughter with a mortgage deposit; or to 69-year-old Mark Ansell of Durris who is no longer able to retire, having been conned out of his savings by Grieg.

It is a privilege to serve under your chairmanship, Mr Stringer, and I join others in congratulating the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing today’s debate.

Before I get into the matter at hand, I want to acknowledge the role that my opposite number, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), has played over the past six years in championing the case of her constituent, Nazanin Zaghari-Ratcliffe. We all have constituents in need, but the hon. Lady’s consistent advocacy has been very effective, and I want to pay tribute to her publicly.

In acknowledging that this is an extremely challenging case, which has caused great misery to many investors who were misled, I recognise, too, the broader context of a financial services sector that is a great success in this country. However, the debate and the points made in it have raised a number of issues that I want to respond to specifically. If hon. Members are patient, I will get into the mechanics of the appointed representative regime, how it is working and what lessons we learn from this.

Fraud is a crime that damages trust between individuals and across society—I would say it casts a shadow across the economy—and tackling it is a priority for the Government. Our efforts are focused on reducing vulnerabilities, catching the criminals responsible and supporting the victims of these despicable crimes. As the hon. Member for Strangford (Jim Shannon) said in his welcome remarks, those crimes cause considerable distress to individuals and have a catastrophic effect on families and communities.

We are working closely with industry regulators and consumer groups to consider additional legislative and non-legislative solutions. I will say more about that in a moment, but first I will set out the Government’s position on this specific case. As hon. Members no doubt appreciate, there are limits to what I can say, but Mr Alistair Greig perpetrated a large-scale fraud over several years, much of it accurately depicted by Members this morning. He lied to those who trusted him with their pensions and life savings, and caused enormous suffering.

A lack of curiosity.

A lack of curiosity. I cannot know whether that is the case, but I say as a Minister that it is important that every business reflects on its responsibilities in cases of this sort.

Clearly, what Mr Greig said about where he was putting that money proved not to be the case. Instead, he was operating what we can all acknowledge was a Ponzi scheme. It went well beyond the scope of Midas’s appointed representative arrangement with Sense, the principal firm, and accepted deposits without proper authorisation. Instead of investing on behalf of clients who had trusted him with their savings, he transferred the money to his personal account and used it to fund the lavish lifestyle that has been spoken about this morning. His fraudulent activities were halted only when the Financial Conduct Authority intervened in 2014, following contact with a concerned investor. When the FCA became involved, the scheme included 279 members of the public, whose investments have not been repaid. They had paid £12.8 million and were owed a total of £13.6 million. Following the conclusion of a legal case involving some of the investors and Sense, the Financial Services Compensation Scheme declared Midas to be in default, following which the scheme was able to start accepting claims from investors and begin paying compensation to eligible claimants.

Although I am pleased that the scheme was uncovered and stopped by the FCA and that the FSCS has been able to compensate for a significant proportion of what was lost, I recognise that the scheme will have caused great pain to those involved, and I condemn unreservedly the actions of the man responsible. In seeking to understand the case, it is worth while for me to unpack the appointed representatives regime, which has been mentioned by the right hon. Member for Orkney and Shetland and others. It is the key policy area that is thrown into focus by this case.

As Members will know, under the UK’s regulatory approach to financial services, a firm must be authorised by either the FCA or the Prudential Regulation Authority in order to carry out a regulated activity. Authorised firms can also appoint other firms to act as appointed representatives for certain regulated activities, but it is worth noting that deposit taking, which Mr Greig was carrying out, is not an activity allowed under the regime, and I will say more about that in a while. In such relationships, the authorised principal firm must ensure that its appointed representatives are complying with all relevant regulatory requirements set out by the FCA. Mr Greig was a director of Midas Financial Solutions, which was a firm that was permitted to carry out the regulated activity of providing investment advice because it was an appointed representative of Sense Network, a financial advice firm that is authorised directly by the FCA.

I have a question that I hope the Minister will answer in the next sentence or two. How would any individual investor know the extent of the authorisation and the relationship between the principal and the AR? This does not conform to any other aspect of the law of agency.

I hope I am coming to that point. The right hon. Gentleman addresses the core point, which is about the comfort that the appointed representative regime provides to the consumer, and the Treasury and FCA are taking steps to ensure that use of the appointed representative regime is not open to abuse.

The relationship between a principal firm and the appointed representatives, including what regulated activities it covers, should be available to the public. That will now be a regulatory requirement, and the FCA is taking steps to improve the information that is available to the public by clarifying what the appointed representative firm is authorised by the principal—in this case, Sense—to undertake and what it is therefore not authorised to undertake. That will give consumers clarity on what activities they can legitimately discuss with the appointed representative firm and ensure that they know there is regulatory oversight.

As we know, Sense was not found to be at fault in its role as a principal, as Mr Greig was acting outside the Sense-Midas agreement. The right hon. Member for Orkney and Shetland has spoken about the role of the principal, and the hon. Member for Hampstead and Kilburn asked what the Treasury is doing about this issue, following the Select Committee report last summer. We are undertaking a review of the appointed representative regime and examining how consumers are protected when dealing with an appointed representative and not directly with the authorised firm.

On 3 December, we published a call for evidence on the regime as a whole. At the same time, the FCA published a consultation paper on proposals that will strengthen the oversight that principals have over their appointed representatives, or ARs, and the information available to consumers on the FCA register when dealing with these firms. That call for evidence is essentially gathering information from interested parties and it closed a few weeks ago on 3 March. The Treasury and the FCA are working together to consider the responses, and to set out the next steps in due course and as urgently as we can.