FSCS uncovers 400 adviser phoenixes at CMC firms

In July, the FCA announced that it will undertake a review of the scope and coverage of the FSCS, stating that it would be reviewing the compensation policy framework to ensure it is appropriate, proportionate and takes into account changes in the market, as well as its regulatory approach.

Rainbird believes regulation itself won't make the problem go away so there are a number of things the FSCS is working on, with the industry trying to understand what they can do and working closely with the regulator on its call for input.

Besides, she said, there was a lag of compensation payments because a lot of the claims, and in particular those around bad advice, went back five to 10 years. 

“There is this tale of compensation that comes through that any action that we take in the short or medium term may not have a fundamental impact on the levy, today, tomorrow,” she said.

“That doesn't mean to say that we shouldn't do it, but it's also about managing expectations that there isn't a silver bullet and there isn't an instant solution to bring the levy down.”

Instead, Rainbird said the easiest way to bring the levy down was to ensure bad outcomes don't happen in the first place. 

She said the industry and regulators needed to do what they can collectively to help mass market consumers to ensure that they have access and limit themselves to appropriate products. 

“There's also something about the consumer taking responsibility for understanding what they're getting involved in, asking the right questions,” she said.

“In some cases, asking is this product FCA regulated, is it covered by FSCS compensation, and also the basic question of if it looks too good to be true, it probably is. That probably means it's something that they should not get involved in.

“It's very clear that everybody's got a role to play in addressing some of the challenges that that sit there because it's clear some recent failures show that consumers have not always understood what it is that they've invested in, and even some of the basics around what is and what is not a regulated product, and what the consequences are.

"That doesn't mean to say a non regulated product is bad, but you need to go read and understand what those implications are, and assess whether the risks that you're taking are appropriate for your own needs.”

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