Assessing whether losses incurred by advised investors were the result of “bad advice” or factors such as fraud that an intermediary could not have foreseen are a key cause of claim delays and an area in which the industry compensation scheme must improve, its chief executive has said.
In his monthly blog, Mark Neale, FSCS chief executive, cited positive performance against payout targets, with redress paid out in 90 per cent of cases within the three and six-month periods allowed for payment protection insurance and other claims respectively.
He said that the 10 per cent of cases where it fails to meet its targets were typically those relating to complex and illiquid investment schemes where it is faced with legal complications and difficulties in quantifying losses.
Mr Neale added that advised claims in particular posed a challenge due to the need to decide retrospectively whether blame can be assigned to the intermediary.
He said: “We turn round 90 per cent of non-deposit claims within our service standards – three months for [payment protection insurance] claims, six months for most others – but the small proportion of claims which take longer almost always reflect the need to unravel difficult legal issues.
“In order to compensate, FSCS must establish that a failed business had a liability to the investors advised by an intermediary. But it is often far from straightforward establishing whether an investor’s losses were caused by bad advice or by some other factor – fraud, for example – which the IFA could not readily have foreseen.
“These are not excuses. We need to be better at anticipating these issues and addressing them earlier.”
Meanwhile, Mr Neale hailed the £1.5bn ‘bail-in’ of Co-operative Bank retail bondholders through a recapitalisation backed by US hedge funds as a “good omen” for successful future bank rescues that do not require industry or taxpayer money.
He said that the Co-op was the first troubled UK bank, building society or credit union to be resolved by ‘bailing in’ its bondholders, rather than through an FSCS payout or government bailout.
At the beginning of December, 75 per cent of Co-op Bank retail bondholders voted in favour of a new £1.5bn rescue plan which will see them choose between interest and capital repayments on their investments.
The deal, which had been revised after an earlier plan failed and saw the bank’s parent Co-operative Group cede a 70 per cent shareholding, will see retail investors holding bonds or preference shares handed a £129m payout in the form of either an 11 per cent per annum note with a final payment on maturity, or a simpler instalment plan to repay their invested sum.
