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Advisers optimistic as FCA launches long-stop review

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Advisers are optimistic on the introduction of a long-stop after the FCA announced it would consult on the issue as part of the Financial Advice Market Review.

In a consultation paper on the FAMR jointly published by the FCA and the Treasury earlier this week, the regulator says it will evaluate the options around implementing a long-stop.

The FCA says it will consider the following options: maintaining the current regime, introducing a long-stop, introducing varied limitation periods linked to the terms of products, strengthening professional indemnity insurance, and setting up a compensation fund.

It says the long-stop could be for 15 years, or “a different time period recognising the long life of financial services products”.

The FCA says enhanced PI cover for advisers would include cover sufficient to meet claims relating to long-term advice, whether the firm is still in business or not.

The compensation fund would pay out in the event of a justified claim older than 15 years against an individual firm, which all firms would contribute to. However, unlike the Financial Services Compensation Scheme, the fund would not require the firm to be insolvent before paying out.

Apfa director general Chris Hannant says the inclusion of the review in the FAMR increases the chances of a positive outcome for advisers.

He says: “The FCA recognises the challenges of unlimited liability for advisers, but has also been cautious of its statutory duty to protect consumers. The FAMR and its emphasis on benefiting consumers beyond those who can currently afford advice means there is a stronger will to make changes.”

Evolve Financial Planning director Jason Witcombe adds: “The FAMR makes change more likely as there seems to be a recognition that a solution must be found. It is not reasonable that advisers have to live in fear of complaints throughout their retirement.”

Hannant says a 15-year long-stop is by far the most preferable option, and a compensation fund would only spread the cost of liability rather than reducing it.

He says: “We feel very strongly that unlimited liabilities are a deterrent to investment in the sector and increase the cost of advice.

“There is also a fundamental question of justice. I recently had a call from the daughter of an adviser who had passed away and whose wife – who had been made a partner in the business but is now suffering from Alzheimer’s – is being pursued for an ombudsman complaint for advice given well over 15 years ago. There is no way the family can construct a meaningful defence to that claim.”

The regulator said it would consider the case for a 15-year long stop on complaints to the Financial Ombudsman Service in its 2014/15 business plan, published in March 2014.

Talks were delayed after the FCA pointed to an EU directive as a barrier to progress. But in December the regulator confirmed the directive would not stand in the way of a long-stop.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. It’s not a question of “implementing” a longstop. It’s a question of restoring what was unjustly ripped away from us without either notice or consultation. And the only reason that the FCA is now considering the issue is because the Treasury has told it to do so. Were it not for that, the FCA’s endless tactic of kicking the can another mile further down the road would continue unaltered no matter how doggedly and valiantly the APFA tries to persuade it otherwise.

  2. I’m with Julian, so do not be misled by all the smoke and mirrors it’s just lip service to TSC.

  3. I am more hopeful than Julian or David on this issue, however I do not like yet another fund we pay into. I understand the FCA’s reluctance to re-introduce the long stop based on them being a so called consumer champion however for years before the RDR and ever since then it has banged on about how much more qualified and professional we are. This “new fund” will end up being used as a first port of call by CMC et all in the same way that FSCS is their first port of call now. Who will administer the fund, who will be responsible for investigating the claims for policies sold 15+ years previously? Where will the money come from for that? Increased overall reg fees? What happened to reducing the costs?
    The Government really does need to step and instruct the FCA to restore the previously removed long stop – end of.

  4. You don’t want to pay into a fund? Can you guarantee that none of your clients will develop dementia and decide they did not really understand the transaction 23 years ago as one of mine did? Can you guarantee that none of your clients will dishonestly amend their records in order to clam a significant amount from you as one of mine did? Can you guarantee that your PI insurer won’t change the meaning of their proposals question (20 years ago) in arrears as mine did? Can you guarantee that when you retire you will not need payment for your client base because one of them has laid a false claim against you? It happened to me and I don’t recommend it.
    Would waking up be a good idea?

  5. @ Elizabeth Toop – The circumstances you describe would all be nullified by the long stop which was what I was saying

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