IMA wants wider view on defaults
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The Financial Consumer Authority should investigate the potential liabilities of all providers and distributors connected to sales that trigger FSCS claims when a firm defaults before it levies the industry to fund redress, according to the Investment Management Association.
The Treasury published a consultation on the new regulatory framework in February, which closed last week.
It proposed that both the Prudential Regulation Auth- ority and the Financial Conduct Authority should have rule-making powers over the FSCS.
The PRA will be respon- sible for making rules relating to deposits and insurance pro- vision while the FCA will be responsible for all other financial activity covered by the scheme.
The IMA says the FSCS rules mean compensation is triggered when one liable firm defaults, as was the case with Keydata. It says: “What matters is there appears to be no rule requiring examination of any potential liabilities that any other regulated firm in the UK beyond Keydata may have to its clients prior to a determination to pay out investors.” It says the FCA should force all providers and distributors connected with sales triggering claims to go through a complaint-handling process to calculate if they are liable to pay compensation, potentially avoiding the need for FSCS intervention.
The IMA says: “It is crucial that new rules are made which are not influenced by a belief that asset managers have deep pockets and can be expected to bail out poor capitalisation, poor decisions or poor regulation.”
The cost of claims related to Keydata was the main driver of a £326m FSCS interim levy announced in January, with £93m levied on advisers and £233m levied on fund companies.
In March, Norwich & Peterborough Building Society said it has set aside £57m to repay customers who invested in Keydata products and to repay the FSCS for N&P Keydata claims the scheme has already paid.
Money Marketing understands that the FSCS is pursuing other firms for recoveries over Keydata claims to recoup more of the compensation it has paid out.
Philip J Milton & Company managing director Philip Milton says: “With Keydata, the FSCS seems to have stepped in as the first port of call. Assessing other firms’ liabilities would not necessarily guarantee a quicker payout as firm’s own investigations can take time but it would save on the costs of administering the FSCS.”
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