Financial Conduct Authority  

FCA warns advisers on pursuing claims against own advice

FCA warns advisers on pursuing claims against own advice

The Financial Conduct Authority has promised to "stamp out" advisers joining claims management companies to pursue complaints against their own poor advice. 

Speaking at a virtual conference hosted by the Personal Investment Management & Financial Advice Association today (June 4) Megan Butler, executive director of supervision at the FCA, said a "recent and particularly egregious development" was the practice of advisers leaving firms which had run up liabilities, often due to poor advice in the pension sector, only to reemerge, directly or via associates, in claims management firms.

Ms Butler said the former advisers would then pursue claims against advice they themselves had given. 

The FCA assumed control of CMC regulation last year, taking over from the Claims Management Regulator, and received requests from more than 900 companies to continue trading under its control. 

Ms Butler added: "Our message here is very clear - these practices are completely unacceptable and totally out of line with any concept of fit and proper, which is a requirement on all authorised persons. 

"If as firms you are considering any of these courses of action, be aware that we will be on to you and we will use all regulatory tools available to us to stamp it out.

"If you have outstanding liabilities to customers you should not expect to be allowed back into the regulatory perimeter."

The regulator warned it was also witnessing advisers preemptively setting up new companies before their own complaints and liabilities had crystallised, in a phenomenon akin to phoenixing but which it termed "life-boating". 

Ms Butler said the regulator was aware historic poor conduct was driving an increase in the levy, and warned it was "disappointing" phoenixing was still prevalent in the industry.

Ms Butler said: "We have also had to prevent firms attempting to achieve the same outcome by acquiring control of existing firms to then transfer assets or put forward individuals with a clean regulatory history to front a new operation, in the hope they get through the [regulatory] gateway undetected. 

"We have also caught firms preemptively setting up new entities, before complaints and liabilities have crystallised. This is a practice we call life-boating."

The warning bells were sounded as Ms Butler said the watchdog would be using the financial survey sent to advice firms next week to assess the wellbeing of the industry and its ability to manage an ever-growing Financial Services Compensation Scheme levy. 

In January the FSCS revealed it had identified 136 potential phoenixing cases which it had passed to the City watchdog. 

Ms Butler said the FCA was also doing a "great deal of work" to size-up the potential FSCS pipeline and avoid "lumpy" levy bills, which for advisers has increased by £16m to £229m for the coming year. 

The regulator is considering how regulatory fees might be collected in a way that avoids firms being hit with unexpectedly large bills, Ms Butler said.