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FSA to probe burden of phoenix firms on FSCS

The FSA is to examine the link between phoenix firms and claims submitted to the Financial Services Compensation Scheme and Financial Ombudsman Service.

The action has been welcomed by the industry, which has been greatly concerned by the recent trend for firms such as Berkeley Berry Birch to wind up subsidiaries, transfer out assets and leave liabilities which are then subject to claims to the FSCS.

In March, the FSA moved to scrutinise the transfer of Berry Birch & Noble Financial Services&#39 business to BBN Financial Planning and review transactions that happened before the liquidation.

But the transfer went ahead and the FSCS now anticipates paying out around £2m in claims against BBNFS, which it will have to recoup from the industry.

The FSA has now revealed that it is examining the correlation between phoenix firms and claims to the FSCS and FOS. Its board is also waiting for a paper on the implications of crystallised risks in the area.

Aifa director of policy Fay Goddard says: “We believe it is up to the FSA to look carefully at firms which are trying to avoid their liabilities.

“The regulator is aware that IFAs are picking up the tab for firms which have phoenixed and it is looking to see if there is a mechanism that could be put in place to stop a phoenix.”

Informed Choice managing director Nick Bamford says: “I felt concerned about scenarios where an organisation winds up a business in order to effectively dump liabilities on other members of the industry, then recreates itself in the same format, so I am pleased to hear the regulator is looking into it.”

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