FSCS wants ban for individuals involved in multiple firm failures

In the foreword to its plan and budget, published today (January 22), chairman Marshall Bailey said the scheme strongly believed that being involved in multiple failures should result in exclusion.

Mr Bailey added: “Only by taking firm action on poor conduct, such as misselling, will we break the cycle of unacceptable practices that detrimentally affect the whole industry.”

The Financial Services Compensation Scheme has worked alongside the City watchdog and other financial bodies to fight against phoenixing — where someone escapes the liabilities in one company and sets up another with the same client base — for the past few years.

Recent data from the Financial Conduct Authority showed it had thwarted a dozen advisers attempting to phoenix in the first 10 months of 2020.

Mr Bailey said: “Our aim is that people who phoenix into claims management companies and claim compensation on behalf of their former customers, would no longer be able to provide regulated financial services. 

“This would offer protection for consumers looking for financial advice, help prevent harm and avoid further burden on levy payers.”

A ban for multiple firm failures was just one of the suggestions put forward by the lifeboat scheme in today’s plan and budget.

The FSCS is currently preparing a new campaign to raise awareness of its protection specifically in the pensions and investments space, with a focus on those planning for retirement.

Caroline Rainbird, chief executive, said this particular market was an area consumers found difficult to understand due to its risks and complexities.

She added: “Consumers can be vulnerable when searching for returns in a historically low-interest market, combined with a pension market which now allows people to be more proactive in making their own financial plans for retirement.”

The FSCS hopes its campaign will encourage consumers to check its website for the types of products it protects before pushing ahead with pension decisions.

Other recommendations from the scheme include preventing high-risk products being sold to mass-market consumers, a move it says could lead to a more clearly defined and restricted set of products available to mass retail customers.

Mr Bailey said: “Recent failures have demonstrated that consumers may not always understand what is and isn’t a regulated product.

"Many products are simply not suitable for the majority of customers and most people would be better guided towards a narrower scope of products, with appropriate protections, and away from those that can lead to the sort of losses that drive-up the levy."

A traffic light warning system system — similar to that found in the food packaging industry and using red, amber and green to highlight the risks of different products in a simple, clear way — could also help consumers navigate the maze of products, Ms Rainbird added.

Their comments come as the FSCS forecasts it will need more than £1bn from the industry to cover the cost of compensation for the coming year, up 48 per cent year-on-year and maxing out the advice sector’s limit for the second year running.

Tim Fassam, director of government relations and policy at PIMFA, said in any other sector, such a forecast would be the focus of a national scandal.

He added: “We cannot continue to normalise this level of loss, accepting that the compensation scheme will hopefully pick things up on the other side.

“Every single person who has had to claim on the FSCS has received a poor outcome that it would be better to avoid. Reform is now urgent, but will take time.”

Moves made

The City watchdog has already made some moves to rethink how the lifeboat scheme is funded, saying in a Call for Input in September that it wanted to consider how it could have a system where “firms which cause harm end up paying more” of the FSCS’s costs.

The regulator reiterated it did not want to conduct a “fundamental review” of the structure, but said it was aiming for a “more preventative approach”, with options including a renewed attempt to pinpoint or penalise potential wrongdoers before claims arrived at the FSCS.

But newly appointed chief executive of the regulator, Nikhil Rathi, later told MPs that it would take "two or three years" to abate the industry levy.

imogen.tew@ft.com

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