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| Paul Armstrong, Evening Standard, 14 November 2002 |
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| CHIEF City watchdog Sir Howard Davies was today accused of being asleep on the job, misleading the Treasury Select Committee of MPs and indulging in cover-ups over the split capital trusts fiasco. |
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| Sir Howard, who battled to keep his cool during the 21/2-hour mauling by the Select Committee, was attacked over the Financial Services Authority's failure to issue earlier warnings about the huge risks associated with the trusts, which have cost investors billions of pounds. |
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| Tory MP David Ruffley said Guernsey's chief financial regulator, Peter Moffatt, had warned the FSA of the dangers posed by split trusts in discussions held in January last year and repeated his concerns in a letter to the FSA three months later. "The Guernsey regulator felt the need to flag this up in April after the discussions with the FSA," Ruffley told Sir Howard. "Why does he feel the need to do it? Why is he wasting his time if you had it sorted out?" |
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| Davies replied that the FSA's research at the time had found no evidence to support claims of a "magic circle" of fund managers who invested in each others' split trusts as a way of propping up their share prices. "Further developments have caused us to have a different view about those allegations," he added. |
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| Ruffley retorted: "That's fine and dandy but that's much later. I'm talking about April 2001 and the fact that Moffatt feels it necessary to tell the FSA about the risks is really significant." |
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| Davies conceded that this was significant but denied Ruffley's suggestion that the Guernsey regulator had "got it right" before he did. "We looked at what risk warnings had been included in prospectuses and whether they had identified opportunities for gearing in the splits and also for cross-investment," he said. |
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| "We concluded they had done so but we should be making sure they were as clear as possible in the future." |
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| Ruffley, a former City executive, said it seemed to him that the FSA had failed to regulate the split trust industry. "You were just giving regulatory approval to pyramid selling," he suggested. |
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| But Davies replied: "That is an extraordinary definition of my responsibilities." |
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| Ruffley said the "poor, old, little Guernsey regulator" had proved lighter and more nimble than the FSA. However, Sir Howard said he refused to discuss other regulators. |
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| Conservative MP Michael Fallon told Davies: "You were asleep on the job." |
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| The watchdog replied: "I don't think so." |
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| The head of the FSA's financial institutions division, John Tiner, was also accused of misleading the committee last month, when he denied Moffatt had ever written such a letter to the FSA. But Tiner rejected this, saying he was not aware of the letter's existence when he was last giving evidence to the committee. |
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