Regulator to tackle unsuitable advice on high-risk products

Andrew Bailey, chief executive of the Financial Conduct Authority, said the watchdog was keen to tackle unsuitable advice on high-risk products and was looking at both investment advisers and mortgage brokers.

Speaking during a press conference after the FCA’s annual public meeting today (18 July), Mr Bailey said: “The advisory world is one of the things we are spending a lot of time on.

“There is an increase in claims coming to the Financial Services Compensation Scheme resulting from a combination of mis-advice and then subsequent failure from unregulated products.

“If you look at the burden of the FSCS cost, that has gone up substantially in this area. I do regard this cost falling onto other firms from FSCS, and [that] there isn’t a risk-based insurance system is something we are wrestling with.”

Everyone is unhappy with this. It should be a regulatory priority to minimise the amount going into the bucket in the first place.John Griffith-Jones

John Griffith-Jones, chairman of the FCA, said the FSCS bill is very large and it falls on people who haven’t committed the crime. 

He said: “Everyone is unhappy with this. It should be a regulatory priority to minimise the amount going into the bucket in the first place.

“[Unregulated products] are products created by small to mid-size firms and typically pushed by small to mid-sized firms.”

A review is currently being undertaken of the way the FSCS is funded.

At the start of this year, advisers were told they face paying £270m to the Financial Services Compensation Scheme as claims continue to rise across the industry.

The FSCS predicted the total number of claims will fall next year following a recent spike, but it warned that the trend of rising numbers of complex life and pensions cases linked to self-invested personal pensions, will probably continue, resulting in "materially higher" costs.

The £270m figure was the total amount the FSCS announced it will be asking for from life and pensions, mortgage, and investment advisers combined for this year and next.

In April the Personal Finance Society (PFS) argued the regulator should rethink their review of the way the Financial Services Compensation Scheme levy is funded.

The professional body called for a joint solution to the flaws in the Financial Services Compensation Scheme (FSCS) and professional indemnity insurance (PII) market.

The PFS is concerned proposals to reform the FSCS, due to be published by the FCA in Autumn 2017, will fail to take into account the outcomes of the later professional indemnity insurance review.

emma.hughes@ft.com