FSCS levy and regulatory action: the week in news

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FSCS levy and regulatory action: the week in news

As we move into December and Britain’s high streets become the backdrop for a dystopian blood sport known as Christmas shopping, so the Financial Services Compensation Scheme gives us all a seasonal gift. It’s time for the week in news.

The Financial Conduct Authority has been active, banning an adviser over Harlequin, while the head of an advice firm also found himself in hot water.

1) Do they know it’s Christmas?

You’d be forgiven for thinking the FSCS didn’t, warning that it expects claims linked to life and pensions advice to cost much more than it thought earlier in the year.

The actual forecast for this class of claims is now £136m for 2016 to 2017, up from £98m, an increase of 39 per cent and given the sums involved, you’d almost think the FSCS wanted to feed the world.

According to Fscs chief executive Mark Neale, the increase is needed to deal with “a more rapid growth” in Sipp advice claims.

“These are claims against advisers, which result from bad advice to move retirement funds out of occupational pension schemes and into Sipps and then to invest in high risk, unregulated investments within the Sipp,” he said.

2) Regulators are comin’ to town

They’ve been making a list, checking it twice and they’ve found out that some advisers have been naughty, not nice.

First, the Insolvency Service banned the director of a company which provided financial advice because of concerns about its accounts.

James Lau, also known as James On-Loon Lau, was the director of GG Blue Sky Limited and WFM Management Services Limited and the records could not account for more than £4m income and expenditure from Blue Sky and £500,000 income and expenditure from WFM over a period of less than two years.

Neither could the records explain what happened to properties purchased for over £600,000 and payments totalling £41,300 made to an internet gambling site.

Meanwhile the FCA is looking to ban and fine one of the biggest sellers of troubled Harlequin Property investments.

Alistair Burns, chief executive of Tailormade Independent, is fighting the regulatory action by taking his case to the Upper Tribunal in the hope of having the FCA ruling overturned.

3) Fund managers could find that it’s cold outside

But fund managers should not be made to feel left out – the FCA has a Christmas present for them as well.

It has resurrected a debate about how firms account for trading revenues.

The regulator acknowledged that the transaction fees, which relate to dual-priced unit trusts, could account for as much as 10 per cent of companies’ revenue in some cases.

It said this estimate related to “risk-free” profits – meaning fund houses are charging investors and declining to reinvest these fees back into portfolios despite none of their capital being at risk.

But somehow it still seems unlikely there will be many fund managers tightening the belt this Christmas and going easy on the eggnog.

4) Advisers are walking in the air

After their victory in the courts, the advisers taken to court by Affinity Financial Awareness can be excused for feeling they are floating in the moonlit sky.

But their barrister has said the cases raises questions for the whole financial advice industry.

Chris Quinn, who also represented the advisers in the landmark Towry case, represented five former Affinity advisers who were prevented from contacting their clients under their contracts with the national IFA.

He said the industry had not learnt its lessons.

Mr Quinn said: “This case illustrates that the financial services industry is still reaching the wrong conclusions about the enforceability of restrictive covenants.

“Firms are not taking proper advice when preparing them. IFAs are too quick to sign them and firms acquiring other firms – often for huge sums of money – are too confident that they will be able to enforce them.”

5) Firm set for blue Christmas without its Gabriel return

A firm has had its complaint against the FCA rejected after it was fined £250 for not submitted its Gabriel return on time.

Complaints commissioner Antony Townsend upheld the FCA’s view that the firm should pay the fine.

This was despite the firm being unable to log in and being told over the phone that it might not be charged the fine.

Mr Townsend said there was no evidence that the problems the firm faced was caused by a technical issue at the FCA and that in any case its attempts to submit its return came after the deadline.