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Aifa: FSCS shake-up will open door to spurious claims

Aifa has warned the FSA’s proposed shake-up of the Financial Services Compensation Scheme risks removing deterrents that prevent spurious compensation claims.

The FSA published a consultation paper this week with proposals it says will enable the FSCS to handle claims quicker and more efficiently. It warns this will lead to increased costs for levy payers.

It proposes to allow the FSCS to pay full compensation at an earlier stage and for the FSCS to have the power to pay claims that have not been investigated if the cost of assessing the claims’ validity would exceed the compensation due.

The FSA is proposing that the FSCS should be assigned investors’ rights in certain cases, which would allow it to more easily recoup money paid out in compensation.

The regulator also wants to allow directors and managers of firms in default to be eligible for compensation. The FSCS currently has to screen out claims from directors and the FSA says this slows the process. Directors and managers would still be subject to court action regarding any liability they may have for the firm’s failure.

This is separate to the planned consultation on the FSCS funding model, which is expected to be finalised by the end of September.

Aifa policy director Chris Hannant says: “Even where the cost of assessing the claim is more than the claim, the fact that claims will be checked acts as a deterrent for people who are on the make. That deterrent is very important for keeping a lid on claims.”

Equilibrium Asset Management investment manager Mike Deverell says: “In tandem with these rules, the FSA needs to act earlier to stop calls on the FSCS in the first place.”

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