The Association of Professional Financial Advisers has criticised the Financial Services Compensation Scheme over its rising budget for pursuing recoveries, saying costly legal action may not be effective.
The FSCS published its Outlook newsletter last week, in which it forecast the cost of pursuing recoveries will reach £7.7m in 2012/13. It had originally estimated costs of £3.9m in its budget, published in February.
Apfa claims most of the £7.7m will be spent on legal fees and questions whether legal action is cost effective.
In a statement issued by the trade body today, Apfa policy director Chris Hannant says it is not cost effective for the FSCS to use city lawyers to pursue small claims.
Hannant says: “These are significant numbers for the profession, but the worst of it is that we have no idea of how cost effective legal action has been. The FSCS’s half year review gives no detail at all as to what money has been recovered from legal actions so far. The FSA must look closely at this issue. The FSCS needs to demonstrate that these recoveries are warranted and cost effective.
“Furthermore, there should now be a process for bringing an end to actions against advisers with a handful of cases. It cannot be cost effective to use City lawyers to pursue claims worth small amounts.”