Letters: Industry is charged ever-increasing fees because of fraudulent misrepresentation

CMCs must play by the rules

Regarding your article ‘FCA slates CMCs for “poor attitude” to rules’ (Oct 29). 

I think the Financial Conduct Authority’s ‘Dear CEO’ letter is a warning to claims management companies that it will act against companies that are causing harm to customers in the areas it has outlined.

CMCs are explicitly being reminded to have proper governance arrangements in place to support good customer outcomes.

Companies will need to consider whether the steps they’ve taken to reduce harm are adequate. This can’t be just a box-ticking exercise. The points raised by the FCA go beyond just concerns around technical process type issues. 

No matter the size of the business, CMCs should be ready to show the FCA they have the appropriate governance systems and controls for the nature, scale and complexity of their business, and with the customer’s best interests being considered throughout. 

Senior managers under the FCA’s senior managers and certification regime may well be asked difficult questions in the event the FCA isn’t satisfied with what it sees.

Mark Turner

Duff & Phelps

Fos awards

Regarding your article ‘Fos chief defends £350,000 award despite “minimal” impact’ (See page 17). I note: “Ms Wayman defended the rise, ultimately decided by the FCA, saying it was ‘the right thing to do’ as it had been at the previous level for a number of years”.

While technically true, this does not justify the recent and sudden increase from £150,000 to £350,000.

The FCA’s own paper on the subject (Increasing the award limit for the Financial Ombudsman Service) said: “We last changed the award limit in 2012, when we increased it from £100,000. 

“We said that, because the limit had not been changed since the Fos was set up in 2001, the consumer protection provided by the service had declined in real terms. The increase to £150,000, effective from January 1 2012, was based on general price inflation since 2001.”

Had the FCA simply applied RPI since 2001 the current Fos limit would be around £175,000, rather than £350,000. So in real terms it has doubled and, as illustrated by your article, for little real-world benefit to consumers.

If we assume the benefit to consumers is less than 50 cases with an average extra compensation of £100,000 (half the difference between £150,000 and £350,000) the overall consumer benefit would be less than £5m. 

Even then, this is overstated, as some of those clients could have pursued advisers through the courts anyway, although the FCA’s paper on this estimated the additional professional indemnity insurance costs on advisers as being “an overall increase in insurance costs of £77m”.

So if the FCA’s original assumptions were correct, then this is a very poor return for consumers as they will ultimately bear the costs of those additional PI premiums as advisers seek to pass those costs to clients. 

Scott Gallacher

Rowley Turton

System overhaul

Following your article ‘Treasury confirms FSCS levy talks as MPs raise concerns’ (Nov 6). 

The only reason the advice industry is charged ever-increasing fees is because of fraudulent misrepresentation by some advisers. 

The way the system is set up and regulated allows bad advisers to lie to clients to invest in products that are very high risk and fail, put their businesses into voluntary liquidation with insolvency practitioners who can’t understand what really happened and set up other companies to transfer operations so it doesn’t look like phoenixing and the claims go to the Financial Services Compensation Scheme. 

There are ways to stop this:

• Make it a criminal offence where advisers lie to clients to generate huge fees.

• Make it mandatory for individual advisers to have PII.

• Train insolvency practitioners to understand how advisers cheat the system and submit reports to both secretary of state and FCA on outcome of investigation.

• Finally, provide funds to support such investigations.

Name and address supplied

Property troubles

Regarding your article ‘CMA cracks down on developers over leaseholds’ (Sep 4).

Some months ago during a house viewing on a new development, we asked if the house was leasehold or freehold and what charges were payable. 

The estate agent told us the only charges payable were for maintenance such as the gardens and that there was no ground rent because the house was sold as freehold.

After selling our home and submitting the application we visited the site office to sign their ‘conversion’ paperwork, which stated the house was leasehold for 999 years. 

We explained we were told the house was freehold by the estate agent working for the developer and this was why we put our house on the market to reserve one of their homes.

But the estate agent denied the conversation. 

The developer would not sell the house to us as freehold unless we paid them £9,885 (15 times the annual ground rent) for the freehold, otherwise the house would be on a leasehold basis with annual ground rent of £659 plus £89.50 annual service charge.

If we chose to buy the freehold at a later date it would increase to 30 times the ground rent.

After lodging a complaint, the developer denied they misled us, but agreed to reduce the freehold purchase price to £4,500. 

They said if neither party could agree they would put the house on the market that evening – so basically strong armed us into paying for the freehold.

Danica de Mello