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Jersey FS



Interesting corresponence from Jersey Financial Services which confirm that investors have no protection.


Date: Tue, 04 Nov 2003 19:36:04 +0100
To: "Nigel Woodroffe" <>,<>
From: David the Dogman <>
Subject: RE: Mrs E L Knott and Scottish Widows International Limited 

Dear Mr Woodroffe
Thanks for your reply. 
You seem to be missing the key issue in this case.  It is simple.  If the FSC in Jersey had real "teeth" having arrived at  a decision based on the facts or on discovery of an issue where a mistake has been made by a Jersey based product provider where the investor has been poorly served or mis sold, the regulator should be in a position to order compensation, as does the UK FSA.  In addition whilst the UK Ombudsman service may not be available to foreign nationals (and neither the UK Investors Compensation Scheme) they can and do investigate complaints against UK FSA regulated companies and do have the power to order compensation where they believe it appropriate. 

Compared to this the Jersey FSC is relatively "toothless" in preventing companies regulated by them from allowing products to be distributed outside the local regulatory provisions of another sovereign territory (I still await to hear of the findings of Mr Pratt following his enquiries of the Spanish regulatory authority, CNMV..... have you any news on this?) and when, as you infer, that an error on the part of the regulated company occurs, you are limited to requesting ex gratia payments rather than being empowered to order such payments.

As stated it is my intention to make this well known to Investors in Europe as a warning, this will be done when I next make a press statement re proceedings in the Madrid Criminal Courts.
David Klein
-----Original Message-----

At 12:38 04/11/03, Nigel Woodroffe wrote:

Dear Mr Klein,
I cannot agree with your assertion that the statement printed on product literature that a company is authorised by the Financial Services Commission in Jersey means nothing in terms of protection to the investor. As a requirement of the authorisation, an insurance company is obliged to submit to the Commission on a six monthly basis full sets of accounts (independently audited annually) and supporting analyses that enable the Commission to review the company's financial position to ensure as far as possible that the company is able to meet its liabilities to policyholders both at the time and in the future. The company's solvency is also reviewed annually by the Government Actuary's Department in the United Kingdom. The company is also obliged to obtain the Commission's approval if it wishes to introduce new products, and the details of these products are reviewed.
As I said in my previous e-mail, it appears from the information provided to the Commission that Mrs Knott may have a case for mis-selling against Knight Insurance and Mr Emmitt, who provided the relevant investment advice. Scottish Widows International Limited ("SWI") maintain that they provided no advice in this matter, and acted upon the instructions of Knight Insurance who were appointed by Mrs Knott to act on her behalf. For these reasons, SWI do not consider themselves liable for mis-selling, and they are not prepared to make an "ex gratia" payment because it can be viewed as setting a precedent. I have tried to change their mind, but to no avail.
Jersey does not yet have an Ombudsman, but such a scheme is in the process of being put in place. However, it is unlikely that such an Ombudsman would have jurisdiction in Mrs Knott's case, because the Ombudsman's remit would be to deal with complaints from Jersey residents. The mis-selling took place in Spain. To compare this with the Ombudsman scheme in the United Kingdom, there are more than sixty UK insurance companies that sell their products to Jersey residents, but Jersey residents cannot take any complaint to the UK Ombudsman - he has no jurisdiction outside the UK and will not consider anything that originated in the Channel Islands, even if it involves a UK insurance company.
On this basis, an Ombudsman with jurisdiction over Mrs Knott's complaint is likely to be in Spain.
Yours sincerely,
N A Woodroffe  
-----Original Message-----
From: David the Dogman []
Sent: 03 November 2003 15:14
To: Nigel Woodroffe;
Subject: RE: Mrs E L Knott and Scottish Widows International Limited

Jersey Financial Services
Nigel Woodroffe

Dear Mr Woodroffe
In view of your comments, I find it incredible that as the State Regulator you cannot enforce a judgement on SWI to pay compensation. As you are aware this is not the case in the UK.
This is a major weakness in the regulatory  system in Jersey, when a complainant is left to peruse a matter of this nature through the Courts at high costs and uncertainty over the outcome.
The public are not aware of this and I am going to make it my business to ensure that everyone in Europe knows the situation if they invest through a product provider in Jersey. The public are being misled by advertisements which clearly state that a product provider is registered with the Financial Services in Jersey, the bottom line is that it means nothing to the investor.
In view of the fact that you acknowledge Mrs Knott was mis sold, surely a company like SW would not need too much persuasion from their 'Regulator' the money we seek is peanuts, the difference is that Mrs Knott is now suffering extreme hardship, and is likely to loose her home as a result of the mis selling, lies and deceit from Emmit.
What is the next step for Mrs Knott , do you have an Ombudsman?
As previously stated this matter re Emmit is in the criminal courts, but I feel action is now needed to be taken against SW via an Ombudsman, Arbitrator, or Jersey Court. Emmit has nothing, no assets, he rents an apartment.
David Klein

At 11:56 03/11/03, Nigel Woodroffe wrote:

Dear Mr Klein,

In cases such as this, the Commission's aim is to gather information from both parties so as to try to form an independent and impartial assessment of the merits of the arguments being presented by both sides. In this regard, it is also fair that the stance taken by each party, and the reasons for it, be made known to the other side. Therefore, I have attempted to keep Mrs Knott informed of the position being taken by Scottish Widows International Limited ("SWI") in this matter, my e-mail of 29 October being a case in point.

The Commission will attempt to conciliate between the parties in order to achieve a settlement that is mutually acceptable, but in this case such a settlement appears unlikely. The Commission has no legal powers to enforce a settlement.

Turning to the specific issues, it does indeed appear that Mrs Knott has been given inappropriate investment advice and has been the victim of mis-selling. The investment advice was given, we understand, by Mr Emmitt of Knight Insurance, a financial adviser in Spain, and any compensation claim for mis-selling must therefore be initiated against that financial adviser. You have informed the Commission more than once that action has already been started in this regard.

We have previously given our opinion concerning the nature of the Convertible Bond, but in view of the content of your e-mail, it is repeated here. All parties accept that a derivative structure was required behind the scenes to enable the issuer to pay the rate of interest offered, but whether the Bond itself is a derivative can be viewed both ways. It can indeed be argued that the whole structure is a derivative, and therefore SWI should not have accepted the instructions to invest in such a Bond. On the other hand, if the derivative is considered to be only the supporting structure, and not the Bond itself, (the terms of which were spelled out in the documentation), then the argument presented by SWI that they did not invest directly in a derivative has some merit. As we have said before, this particular issue will probably need to be decided by a court of law, although taking such action may not be necessary if the claim against the financial adviser for mis-selling is successful.

Whether or not SWI was authorised to make its products available in Spain is a matter for the Spanish regulatory authorities. Any offence or breach of regulations will have taken place in Spain, and it is therefore Spanish Law that may have been broken. Only they can make that specific judgement. As we understand it, this may well hinge on the regulatory status of the financial adviser in Spain. The Commission has no authority to interfere in matters of Spanish Law, and SWI have stated that they have a legal opinion that they were acting in accordance with Spanish regulatory law. Should the Spanish regulators conclude that SWI was acting in their country without proper authorisation, they are able to take the necessary action against the company. In this regard, the Commission will, of course, provide assistance to the Spanish regulators and take appropriate action should this be requested.

Yours sincerely,

N A Woodroffe
-----Original Message-----
From: David the Dogman []
Sent: 31 October 2003 15:43
To: Nigel Woodroffe
Cc: Elsa Knott
Subject: Re: Mrs E L Knott and Scottish Widows International Limited

Dear Mr Woodroffe

I am in receipt of a copy of your email dated Wednesday October 29th. 

I have addressed my enquiry to you as the authorised regulator responsible for the financial services activities of Scottish Widows International Limited (SWI). 

I am disappointed that, whilst you indicate that SWI are maintaining their position that the investment bond itself is not a derivative product, and further, despite your confirmation that there is a derivative structure behind the product that you have accepted this as being within the spirit and letter of the conditions which clearly indicate that an investment in a derivative product would not be permitted.  There is no question that the involvement of a derivative structure behind the arrangement in which Elsa Knott (EN) invested was in integral part of the overall structure despite the fact that Scottish Widows International does not concede this point.  They are indeed arguing semantics.    Their response to EN complaint is to use “smoke and mirrors” to camouflage the true nature of the underlying investment used in this arrangement and which they should have refused to hold as an asset of the bond.

I would like you to confirm that you have fully investigated this matter and that as the regulator responsible for Scottish Widows International Limited that you do not simply accept their interpretation of the basis of the contract between us but that you will reach an impartial and independent decision as to whether or not the inclusion of a derivative structure contravened the product description and terms upon which I made my investment.  Its your responsibility as a competent regulator to make an impartial judgement based upon the policy provisions and exclusions applicable.

You are correct when you state that Mr Emmitt of Knight Insurance provided the investment advice.  Whilst Scottish Widows did not directly recommend the investment to EN they permitted Mr Emmitt to act as their intermediary in providing advice that led to an investment, which contained within it an investment structure that by reference to the policy conditions should not have been permitted. 

I understand that your colleague Richard Pratt has been discussing with the Spanish national regulator (the CNMV) the matter of the distribution of Jersey based products which, according to the advice EN received may not be distributed in Spain unless and until they have been authorised by the Spanish regulator (in this case possibly the DGS) and that as such until such authorisation is received the products are not approved for distribution.  I would be interested to learn whether you are in agreement with Scottish Widows information or whether you can confirm that my understanding is correct. 

According to advice EN received regardless of whether Knight Insurance was a firm of insurance brokers or insurance agents they acted as EN agents and intermediaries of a Jersey based product in connection with this investment and, as such, should have been regulated by the DGS accordingly. The information you have received from Scottish Widows and your interpretation of the regulatory requirements concerning that insurance and Scottish Widows International Limited is subject to considerable doubt.  Can you confirm that it is the opinion of the Jersey FSC as the regulatory body for Scottish Widows International Limited that they were duly authorised to distribute their products through an unregulated insurance broker or agent? 

I understand that the company have advised you that they continue to maintain that the case of mis-selling should be bought against Knight Insurance but will you confirm that it is your responsibility to investigate this matter to arrive at an impartial and fair decision regarding the nature of this investment and the question of whether or not the product should have been made available for distribution in Spain through Knight Insurance.

It seems to me that you are reluctant to make a judgement in this matter that would favour the investor and seem to simply accept advice provided to you by Scottish Widows International that is both subjective and incorrect.  Is not your obligation and responsibility to determine the facts if the matter and then make your judgement accordingly?   If so I would like to see you decision in this matter and the basis for your findings without further delay.  

I look forward to hearing from you shortly.
David Klein
copy Elsa Knott

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