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FSCS chief calls for ‘significant’ rise in payouts

Outgoing Financial Services Compensation Scheme chief executive Mark Neale is calling for consumer protection to “increase significantly”.

In a speech to be delivered later today at the UK Finance’s Retail Banking Summit, Neale (pictured) will outline his views of the organisation and the future of consumer protection from financial services products.

He will say that the FSCS protection should increase so that no consumer is at risk of losing a major part of their pension if they are mis-advised on how to invest.

More than 60 per cent of the £3.3bn paid out in compensation costs during Neale’s tenure were as a result of mis-selling or poor advice, the FCSC says. A significant proportion was due to “bad advice” to transfer money from occupational schemes in order to invest in risky and illiquid assets, usually held within a Sipp.

FCA confirms FOS compensation limit hike

The FCSC has paid out compensation of £581m for claims in the five years from 2014/15, compared with £80m in the four preceding years (from 2010/11 to 2013/14) before the pension freedoms took effect – a rise of 626 per cent.

Neale will say: “FSCS’s compensation payments are an index of a market in trouble, which is highlight by the fact that claims and payouts are rising. It is sobering that a substantial portion (61 per cent) are as a result of mis-selling or bad advice. It results from a market characterised by a bewildering array of products, by complexity – some deliberate – and by profound information asymmetry.”

The speech continues: ““It is delusional to think that any regulator could police such a fragmented market to anticipate harm before it manifests itself, rather than to react to its occurrence. Consequently, I advocate prioritising protection of the consumer over maximising choice. This means better and clearer incentives to save for retirement; simpler products and more default options; and better targeted communications, including about FSCS, when they matter to consumers.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Basically he is saying that the FCA have let this happen, their solution is to increase compensation levels and therefore FSCS levies paid by honest advisers, then ultimately honest consumers.

    Simpler products will aid consumer understanding to the point where claiming ignorance is not a valid defence, not only are there crooked advisers but greedy claimants, so avoiding any element of doubt would be a good thing.

    As is always the way with politicians and the like, he does not say where all this money will come from for compensation to be increased, kill the advice market then there will be no FSCS levies.

  2. If he is saying that he finds these products too complicated it is a surprise that he was given the job in the first place!

  3. The rationale behind this can only mean one of three things:

    1. That the FSCS believes that advisers continue and are increasingly ripping off clients. The figures in their annual reports don’t reflect this.
    2. There is a small band of cowboys who are responsible for the majority of huge claims. Is this a failure of regulation?
    3. The Nanny State wants to ensure that as few people as possible lose any money, notwithstanding their own stupidity, gullibility or downright fibs.

  4. Its quite simple to reduce the costs to consumers and advisers and the risks. If you buy a product with the FSCS badge on the front you are covered by the FSCS and will pay a premium to be covered. No FSCS badge, buyer beware as there is no cover. Thus the bad boys and girls will have less scope to rip people off and then rely upon my clients (for it is them who pay) to subsidise them.

    • Good idea Tim apart from quite a few things.

      Surely, you have to offer the same FSCS eligible products in a non-FSCS form as well or genuinely sophisticated investors will complain about paying for the schmucks.

      But if you do that, the cheapskates (a surprisingly large chunk of the British public) will self-identify as a sophisticated investor (as if that has never happened before.

      The other problem is the pre-funding issue. The premium is paid up front but the claim coudl be many years later. The FSCS like PI insurers (somewhat unfairly) gets around this by making the current crop of levy payers pay for what are essentially historic IBNRs. Set up an IFA firm today and you immediately share in the British Steel misselling already done. Pre-funding involved credit risk and pricing risk, and realsitically the only suitably credit worthy institution to underwrite this is HM Treasury. But that is no good either since HM Government of the day has an unblemished track record of changing the goalposts later in the day. If claims exceed expectations within the pricing, perhaps because the charlatans have spotted that the Gov’t has granted them an almost unlimited cost and guilt-free facility to undertake bad conduct,the gov’t would try to cut back payouts rather than force taxpayers to top up the shortfall.

      That is not so say there isn’t a benefit to putting the gov’t on the hook for the FCA’s performance and creating a bit of proper tension between the two, but I fear there will be no appetite for that at No. 1 Horseguards.

  5. Does anyone else here at this point feel their blood boiling. Advisers have stated repeatedly that unregulated investments need to be either banned from pensions or placed into an additional permission with the regulator.

    There seems to be no will to stop the fraudsters, only a will to take more funds from the good advisers who remain and land up paying.

    I really am astonished that we as a Profession have no say in how we are charged, regulated, it is a one way street.

  6. “It is delusional to think that any regulator could police such a fragmented market to anticipate harm before it manifests itself”.

    Well actually no its not, advisers were and have been pointing this out for over a decade. The issue is the regulators are delusional. Take last weeks FSCS comments from the FCA concerning PI Insurance. Te insurers tell them cost will rise by 200% to 500%, the regulator states they are wrong, whilst also admitting they have over stated the poor outcomes in the market.

    • That’s exactly the sentence I was going to quote. Were the FCA to regulate in a proportionate and appropriately targeted manner (an approach to which, for reasons at which we can only guess, it appears to be constitutionally opposed), then surely it should be possible to identify and then home in on the rogue fragments of the IFA community? Asking the right questions on its GABRIEL returns, looking at the answers and then acting on any signs of dangerous activities seems such an obvious and straightforward approach that one has to wonder why the FCA has taken so long to get round to it.

  7. Hmm so hours after I post that unregulated investments should be banned from pension funds, having stated this since 2006, BINGO, the regulator today thinks it might be sensible to ban them.

    YOU CANNOT MAKE THIS UP.

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