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The Association of Independent Financial Advisers (Aifa) has warned that proposed reforms to the Financial Services Compensation Scheme (FSCS) could encourage false claims and lead to increased costs for the industry.
Aifa, responding to the Financial Services Authority (FSA) consultation on reforming the FSCS, also called for a delay to any changes to the way the scheme is structured and funded to bring them into line with a wider review of compensation scheme funding.
In March the FSA proposed that the scheme be allowed to compensate investors without investigating to confirm they have lost money.
In its consultation paper the regulator suggested the FSCS could make payouts to investors without assessing their eligibility, or the amount claimed, where it was not ‘proportionate’ to assess the case.
However Aifa has hit back at the FSA’s ideas arguing that relaxing the checks on the validity of claims could lead to wave fraudulent claims.
Chris Hannant (pictured), Aifa policy director, said: ‘We are particularly concerned that relaxing the process by which consumers are able to seek compensation under the FSCS will encourage fraudulent claims.’
‘We already see that, alerted by media coverage and claims management companies, some consumers in the hope of a compensation payment will complain to the Financial Ombudsman Service about policies they do not and have never held. Similarly if the FSCS were to eliminate the application form stage of their process, this could open the floodgates to fraud and increase investigation costs.’
Hannant added: ‘We also now seem to be moving to a position where it is assumed that all investors in a default are eligible for compensation. By paying out without a full investigation of individual circumstances, FSCS is creating a zero risk environment for investors.'
The Investment Management Association (IMA) agreed a wider review was required, arguing the current proposals failed to consider the impact of cross-subsidy liability.
Guy Sears, IMA director of wholesale, said: 'We’re disappointed to see that the bulk of the proposal concentrates on improving administrative processes within the FSCS at a time when the scheme rules need a complete overhaul.
'These areas should be suitably addressed under one extensive review to ensure the rules operate to provide protection, that the scheme secures appropriate funding and that consumers understand the nature and extent of any protection.'
Comments (5)
If a client has a genuine claim then they should be happy to allow due process to be followed. The FSA should not be encouraging an easy claim environment which this consultation paper would undoubtedly lead to. Given the level of care that advisers are required to provide, the same level of care should be afforded to advisers with a claim against them. Innocent until proven guilty. But if found guilty, the consequences should be equal to the wrong done.
FSCS should be funded by an explicit levy on all financial products, so that consumers can see they are paying for fail safe protection. After all the FSCS is supposed to be a fail safe system, when other options for redress are not available.
16:21 on 26 June 2012
If only we had an ideal world. Yes there are some very poor IfAs out there still offering bad advice, however the public in the main have adopted a culture of laziness and a blame lessculture-you only have to look at the endowment "scandal". I received 3 compliants over an 11 year period , 2 of the policies were on track to rach their target, and I didnt arrange the 3rd. Recently I have been contacted about my PPI claim on my phone-yes this would the policy I never had!!!!
The basic principle in our industry is to prove yourself innocent as you are held to be guilty unless you have robust record keeping. and even then you are at the mercy of the adjudicator. I am all for a fair and equitable compensation scheme, that is fair for all not just one sided. Misleading and downright fraudulent claims should be punished by the IFA having the right to sue the claimant for expenses. A complete overhaul is require not more ways to make it easy for both FSCS and these claims companies
09:27 on 27 June 2012
So Mr X makes a complaint to ABC IFA's about having been mis-sold a policy and claiming compensation of £5,000.
ABC IFA's can find no record of having sold Mr X anything at all and rejects the complaint.
Mr X refers his "complaint" to the FSCS, which the FSCS upholds without investigation, sends him a cheque for £5,000 and writes to ABC IFA's demanding reimbursement.
ABC IFA's respond to the FSCS saying they never sold Mr X anything at all.
The FSCS then says............what? We don't care/believe you, Mr X's complaint has already been upheld and settled, so you've got to pay anyway or we'll shut you down?
Is that how it'll work?
09:35 on 27 June 2012
Morning Julian, let's hope that the FSA nad FSCS will confirm that your summary of what you think will happen is incorrect!
09:51 on 27 June 2012
Write in - get your cheques here - no proof of entitlement required....
In connection with any other sane organisation such a headline simply wouldn't be concievable. However insert the letters FSA and it suddenly acquires the sad but not necessarily misguided beleif that there just might be a fire underneath the rising smoke.....!
10:15 on 27 June 2012
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