FSCS chief exec in call for flexibility

Mr Neale is set to approach the FSA to ask to expand the scheme’s powers, including giving the FSCS greater flexibility when compensating investors in complex products which are difficult to value.

“We want to be able to compensate first and recover later,” Mr Neale said. “We will make the case to the FSA for greater flexibility in cases where assets are harder to value or harder to realise. These can be quite difficult judgements to make, and recovering assets can be a lengthy process.”

He said that the issue had arisen from the collapse of Keydata in June 2009. It took the FSCS 17 months to assess the value of the assets backing Keydata products before it declared that they had no value. Only subsequently did the FSCS begin paying Keydata-related claims, which led to its £326m levy in January 2011 on firms that fall under its investment subclass.

The FSCS is facing a similar delay in the case of Arch Cru, as it assesses the value of the remaining Arch Cru assets currently being wound up by Guernsey-based Spearpoint before agreeing to pay any claims against advisers no longer trading.

Mr Neale said that if the FSCS was able to compensate without first having to wait to value any underlying assets of a business, it may provide the industry with more clarity about levies. However, he emphasised that the main aim was to boost consumer confidence by increasing the speed of payouts.

Under Mr Neale’s proposal, the FSCS would take on compensated investors’ rights to recovered assets and use recoveries to reimburse levies as and when they are received.

Mr Neale also defended the FSCS’s pursuit through its law firm Herbert Smith of IFAs who sold Keydata products, following letters which have been sent out to many advisory firms warning of legal action to recoup money paid out to Keydata investors.

“If our legal advice is that third parties are liable for some of the losses, and can meet the costs put to them, then it is incumbent on us to take action as we have done,” he said.

Regarding the future funding of the FSCS, Mr Neale said some trade bodies he had spoken to were becoming “warmer than they were” toward a prefunded scheme, but added that there was no clear favourite funding model yet. A date for the consultation is yet to be set, but it is expected as soon as EU guidance is finalised.

Mr Neale said: “I would like to see the consultation on the FSCS’s future funding start sooner rather than later, but there are continuing talks in the EU about compensation and it would not make sense to launch a consultation that could be overruled by a decision in Europe.”