The FSA has watered down plans to allow directors of failed firms to claim through the Financial Services Compensation Scheme but is pushing ahead with proposals to pay compensation without fully investigating a claim’s validity.
The regulator published a consultation paper in March on changes to the compensation sourcebook.
The FSA put forward a range of measures to enable the FSCS to handle claims more efficiently, including extending claim eligibility criteria to directors and managers of firms in default.
In its policy statement, published today, the FSA says it dropped this proposal as the majority of the 33 respondents argued those responsible for the default should not be able to benefit from compensation.
The FSA says: “Instead, we will provide a limited discretion for the FSCS to treat directors and persons who contributed to the firm’s default as eligible claimants.”
The FSA says the FSCS would allow directors of failed firms to be eligible for compensation where it would aid the efficient payment of compensation, the transfer of the failed firm’s business to another firm, securing the issue of insurance policies to replace existing plans and the payment of life insurance benefits.
The regulator has also amended its rules so the FSCS can pay compensation without a full investigation of the claim in cases where the cost of assessing the claim would be disproportionate to the size of the claim itself.
Facts & Figures Financial Planners managing director Simon Webster says: “As soon as it gets out that investors can make a claim without it being properly investigated, it will just be a licence to print money at the industry’s expense.”