Phoenixing must be stamped out - and soon - or risk pushing the cost of advice up even further, a senior policy specialist has stated.
Matthew Connell, director of policy and public affairs of the Personal Finance Society, lamented the cost of firms failing and letting complaints fall back on the industry-funded Financial Services Compensation Scheme, while the company directors set up shop again in another guise.
He told FTAdviser: “The cost of poor practices at a minority of claims management companies impacts public trust and pushes up the cost of financial advice.
"Phoenixing must stop.”
Connell was responding to the policy statement from the Financial Conduct Authority yesterday (June 7), in which it set out its guidelines for how it would prevent claims management companies from phoenixing.
I’m not a fan of ambulance chasers at the best of times.Tim Morris, Russell & CoThe new rules, which will apply from July 7, will prevent CMCs pursuing a claim to the FSCS if any employee, controller or staff member of that CMC had anything to do with the financial services activity that had given rise to that claim.
It will also prevent family members at the CMC from pursuing the claim if they are related to the person who was involved in the activity relating to the claim, as well as preventing the CMC from providing any financial benefit to the person carrying out the activity that gave rise to the claim.
The FCA expressed its belief these measures would help take the number of claims down to zero, something which some IFAs, who have been involved in helping clients pursue claims against failed advisers and failed CMCs, earlier told FTAdviser would be almost impossible.
But Connell believes the measures are a "strong stance" from the regulator.
He told FTAdviser: “Last year, when the FCA published a consultation paper exploring ways to prevent claims management phoenixing, we shared evidence we gathered about the misconduct of claims management companies.
“It is great to see the regulator taking a strong stance and boldly committing to stamping out phoenixing within two years. Individuals connected with a wound-up financial services firm should not be able to reappear at claims management companies and financially benefit from their own past conduct.
A spokesperson for the FCA said: “No one in financial services should be able to gain financially from their own past misconduct.
"Our new rules aim to stop this practice – and increase consumer trust and confidence in both CMCs and financial services firms.”
The policy statement said the rules would not apply to pre-existing contracts, so those claims will continue to be handled as legacy cases, and the FCA expect those to be completed within two years.
No one in financial services should be able to gain financially from their own past misconduct.FCA spokespersonIt is understood the regulator does not want to disrupt existing claims already going through the process, and put them back to square one, but the FCA needs to ensure the process is conducted in a full and proper manner.
Tim Morris, IFA with Russell & Co, said he felt the FCA's crackdown on phoenixing CMCs - especially advice firms failing, falling onto the FSCS, and then setting up again as CMCs to pursue those claims, cannot come "soon enough".
He said: "I’m not a fan of ambulance chasers at the best of times. There are much better ways to promote methods of compensation for what might (in retrospect) be deemed as poor advice.
"There’s something seriously wrong with a system where someone can advise a client and then they, or someone else, can charge that client an eye-watering commission to claim compensation for them in future.
"And then potentially charge them a fee to reinvest the compensation proceeds.
"My solution for such perpetrators, as the first Queen Elizabeth might have said, is: 'Orf with their heads'."
Simoney Kyriakou is senior editor of FTAdviser
