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&#39Deals to buy failing IFAs setting a bad precedent&#39

Leading IFA Hargreaves Lansdown is warning that deals to buy IFA firms which leave the Financial Services Compensation Scheme to foot the bill for any future compensation claims could open the floodgates to similar deals.

Managing director Peter Hargreaves believes the deals struck by AMP in its purchase of Towry Law and by Lighthouse in its purchase of RJ Temple have set a precedent for more IFA players to buy the assets of failing IFA businesses while leaving the FSCS and the industry to pay for any future misselling liabilities.

The FSCS currently covers firms where they are unable or likely to be unable to pay claims against them. This is usually when a firm is insolvent or has gone out of business and is declared in default.

FSCS head of communications Heather Tilston says: “The role of the scheme is clear and the industry was consulted when it was set up. If there are issues where a company can walk away from its liabilities, then that comes under company law.”

Hargreaves says: “Companies should not be allowed to leave the FSCS holding the baby. The only way a company can be sold is if the people that buy it take on the liabilities. The firm should not be able to change hands leaving the new owners exonerated from their liabilities. That is ludicrous.”

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