The FCA has already introduced additional checks to improve its ability to intercept authorisation applications from advice firms or individual advisers who may have avoided liabilities to consumers previously, or are likely to have liabilities in the future.
But the big challenge is that there is often a time lag between the advice given and the harm crystallising on long-term investment products such as pensions, which makes it hard to spot where there is clear consumer detriment.
Additionally, because most complaints are recorded against a firm and not specific advisers, individual directors can potentially set up again under a different corporate structure to avoid culpability.
While sole traders or those in limited liability partnerships can be pursued individually, if they set up as a new limited company it can be harder for a claims management firm or individual to pursue a phoenixed director.
The FCA has therefore pledged to work on identifying individual advisers attached to a complaint, and making them accountable for the consequences of their poor advice through harsher enforcement action.
Other bodies have recently announced their own measures aimed at eliminating malpractice. Jat Bains, finance partner for law firm Macfarlanes, points to a consultation response paper from the Department for Business, Energy and Industrial Strategy, published in August.
The BEIS intends to introduce rules giving the Insolvency Service wider powers to investigate the actions of directors of dissolved companies.
Mr Bains says: “This is a positive development as it will help to close a perceived loophole where a company is dissolved following administration, as well as situations where a company is dissolved absent a formal insolvency process.”
However, he believes the challenge here will be to ensure the Insolvency Service is properly funded to give teeth to those powers.
He adds: “It remains unclear whether that will happen. For example, I understand only 5 per cent of directors subject to a D-report [a form used by insolvency practitioners when completing their statutory returns and reports on directors’ conduct] by a liquidator in relation to their conduct are subject to prosecution for disqualification as a director.”
Separately, in April HMRC issued a consultation on widening its powers so that those responsible for tax avoidance or evasion via a phoenix could be made liable for unpaid tax.
“It is unclear who the persons responsible would be, but it is conceivable that this will extend to a new company set-up as part of the phoenix transaction,” Mr Bains says.