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Advisers face setting up trusts to pay for claims after leaving

Advisers may have to set up trusts to pay for any misselling claims arising after they have left the industry.
In its prudential rules paper, published last week, the regulator put forward ways of ensuring the “polluter pays” after leaving the industry.

The FSA says it has identified three possible options – a firm leaving authorisation in an “orderly fashion”, a trust set up at authorisation with adequate funds to be used when an adviser leaves the industry, or a combination of both.

The regulator says the trusts may run for six years after an adviser leaves the industry and it is “exploring” whether, after this period has expired, any funds left over would be passed back to the individual.

In terms of leaving the industry in an orderly fashion, the FSA says an adviser could enter into a commercial arrangement to transfer the responsibility for future claims to another authorised person or leave resources within the firm.

The FSA says that an arrangement could also be made for adequate capital resources to be left with an appropriate person who could then administer the funds, pay claims and dist-ribute any surplus resources. It says this option would be more appropriate for firms looking to wind up their businesses.

The regulator says that any proposed changes will be deferred pending the outcome of the current banking and compensation reform.


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