Financial advisers have welcomed the Financial Conduct Authority’s proposals to ban some claims management companies from managing Financial Services Compensation Scheme claims, though with a degree of scepticism.
The regulator said this week (May 17) it was looking to stop the practice of ‘claims management phoenixing’ by banning CMCs from handling claims where they have a relevant connection to the claim.
The FCA had received data from the FSCS on 1,319 claims where phoenixing appeared to have occurred and estimated the cost to consumers to be £11,000 on average per claim in CMC fees.
Claims management phoenixing occurs when individuals from financial services firms go out of business, but later reappear in connection with CMCs and charge consumers for seeking compensation against their former firm’s poor conduct by bringing a claim to the FSCS.
Tim Morris, IFA at Russell & Co Financial Advisers, welcomed the move, saying: "It’s great the FCA are finally taking some definitive action against these ‘phoenixing’ firms. It just isn’t right that a firm can benefit from its own poor outcomes and leave others to pick up the bill.
"This action is long overdue and one small step in the battle against the bad guys, yet a step in the right direction."
However, Tom Kean, director at Thameside Financial Planning was more doubtful. “How long have we been reading about CMC phoenixing?," he said.
"It seems like years and yet only now are we reading anything concrete is being done about it, and even then I have my doubts. I’m not sure what sort of people in financial services are 'cunning' enough to do this sort of thing but you can rest assured it is the darker side.”
Andrew Oliver, financial adviser at Andrew Oliver & Co, said the FCA should have cracked down on this sooner.
“Why did they not already have measures and rules in place to stop that,” he said. “The one thing that the current and past regulators have been constant with [is] locking the stable door after the horse has bolted.
“The FCA needs to engage more with firms with regards to collaborating ideas to improve the industry for all and root out the bad firms and bad practices. There is too much that goes on after the event but not before the regulator has had a thematic review.
“It feels like the regulators see all firms as a problem rather than the lifeblood that pays for their existence.”
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