Aifa slams FSCS plans over ‘fraudulent claims’ potential
Trade bodies call for wider review and warn revisions could encourage fraudulent claims.
Changes to the Financial Services Compensation Scheme sourcebook proposed by the Financial Services Authority could encourage false claims and further increase costs to the industry, the Association of IFAs has warned.
Responding to the FSA consultation on the Financial Services Compensation Scheme, Aifa also called for a delay to the rule changes to align them with the wider, soon-to-be-published review of FSCS funding.
Chris Hannant, policy director at Aifa, said: “We support consumer protection as an aid to market confidence, but we are concerned with the way the FSCS is evolving.
“The FSA has made clear statements that the compensation scheme should be fair, affordable, durable, stable and based on affinity of activity. The current scheme fails to meet those goals for advisers.”
In a consultation paper published 27 March 2012, the FSA proposed allowing the scheme to pay full compensation earlier in cases where an investment has some residual value, instead of waiting for the investments to mature to assess the actual loss.
Mr Hannant voiced particular concern that relaxing the claims process will encourage fraudulent claims.
He said: “We already see that, alerted by media coverage and claims management companies, some consumers in the hope of a compensation payment will complain to the Financial Ombudsman Service about policies they do not and have never had.
“Similarly, if the FSCS were to eliminate the application form stage of their process, this could open the floodgates to fraud and increase investigation costs.
He added that if a full investigation isn’t conducted for each individual case, this could create the assumption among investors that they would be eligible for a claim for every default. This would engender a no-risk environment for investors.
He added: “While we welcome the ongoing review of the scheme’s funding and its imminent publication we do not think it is appropriate to implement the proposed operational changes in isolation.”
The Investment Management Association and Association of Private Client Investment Managers and Stockbrokers also “strongly opposed” the proposals and called for a “much wider” review.
In a joint statement the trade bodies argued that the proposals fail to consider the impact of cross-subsidy, such as when asset managers had to contribute £233m to the £333m required in 2011 for intermediary defaults.
Guy Sears, director of wholesale at the IMA, said: “We’re disappointed to see that the bulk of the proposal concentrates on improving administrative processes within the FSCS at a time when the scheme rules need a complete overhaul.
“These areas should be suitably addressed under one extensive review to ensure the rules operate to provide protection, that the scheme secures appropriate funding and that consumers understand the nature and extent of any protection.”