The wrong people are paying the levy and the fund is not going to enough of the right consumers
Consumers of financial services firms are not being given enough compensation when they are missold, misadvised or out-and-out cheated. Or, rather, not enough clients are being given compensation.
We know that because, in most cases, they have to step forward and admit they have let someone missell, misadvise or out-and-out cheat them.
And many are too proud. They may not have even told their loved ones. So, putting their hand up and saying “ahem, can I have some compensation for being a bit silly, please?” is just not them. Inevitably, many will never get the money they are owed from the Financial Services Compensation Scheme.
More evidence of such a missed opportunity comes from two separate government schemes.
In the first, one-and-a-half million people are not claiming free money even though all they have to admit to is lifelong love and living on less than £46,350 (£43,430 in Scotland). As a result, £1bn-plus sits waiting for them in Chancellor Philip Hammond’s coffers. Yes, it is the Marriage Allowance.
People are turning down free sums of £238 this year, next year and every year, rising at least with inflation for the foreseeable future. There is also a potential £900 extra waiting, with backdating available for most who fulfil the conditions.
Despite this, however, around a third of the couples who could spend a few minutes making the simple online claim do not do so.
The lesson has been partly learned in the second case, concerning the rather Orwellian-sounding Ministry of Justice. In 2013, fees of up to £1,200 were introduced for workers who challenged their boss over some aspect of their job such as unfair dismissal, equal pay, race discrimination. You know, the kind of troublemakers who want their boss to obey the law.
Previously, claims to the Employment Tribunal had been free, but following the change, the number of cases inevitably tumbled from around 5,000 a month to little more than 1,000. Overall, around 70 per cent of wrongs remained un-righted. But it did save money. Job done.
Questions were asked, complaints were made and, most importantly, cases were brought. In July 2017, the Supreme Court decided that the MoJ had acted both unlawfully and unconstitutionally by introducing the fees and the MoJ scrapped them. “Ahem,” said MPs, “what about the 1,500 people a month who had stumped up before the judges upheld the rule of law against the MoJ?” Well, there was a redress scheme. People could claim back the £32m it unlawfully took.
But they did not. By the end of December, less than 10 per cent of the money had been repaid to just 3,400 people. The new Lord Chancellor (who is neither a Lord nor the Chancellor) David Gauke claimed that was “reasonable progress” but nevertheless announced the MoJ would now write to all those who had paid the fees, encouraging them to claim back the money they had been charged – normally between £390 and £1,200 each.
So, back to your very own FSCS. I call it “yours” because £88m of the £320m raised in levies last year was paid by investment intermediaries – the good guys who read Money Marketing. Not the rogues, incompetents and crooks who have at best missold and at worst defrauded thousands of innocent customers.
If anyone owns the FSCS it is you lot.
Some, most or even all of those losses can be reimbursed by the “goodwill” of financial advisers. But I know many of you, even the best, would rather not pay this open-ended levy. You pay up because it is a condition of being able to do your job.
I wrote in this column nearly three years ago that you should not have to pay. Of course, someone must. But there is not a major bank that has not been fined for cheating Libor or rigging Forex, not to mention money laundering, mortgage securities fraud or misselling PPI on an industrial scale.
The fines from those could go, as they once did, to reduce the levy paid by the good guys, and the banks should also disgorge the profits made from those illegal acts. If that was not enough, which it might not be, they should pay the balance anyway.
They should be the bank of last resort when it comes to customer redress. The recent consultation by the FCA to make them pay 25 per cent of the cost is nowhere near enough. Many advisers told the FCA as much, suggesting they should pay 75 per cent. I say 100 per cent, but that is not an option in the FCA consultations.
The quid pro quo is that the FSCS should do more to find and compensate the losers. Each month it publishes a list of the firms that are bust, in administration or just plain missing. But it can only reimburse customers directly – or try to – if the bust firm held client money which is still available.
For an adviser failure, it needs clients to come forward and contact them with the necessary details. That can be done online or on the phone, but how many victims do it?
The FSCS should follow the MoJ and write to all the clients of the listed firms encouraging them to claim. It says the numbers would make that unfeasible. So, it would need extra resources, but as a lot more money would be paid out that would be well worthwhile.
Especially as, under my plan you, the good guys, would not pay it. The banks, caught with their fingers in the till so often they are bruised, can afford it – and still make a very healthy profit from retail banking.
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programme. You can follow him on Twitter @paullewismoney