Financial Services Compensation Scheme chief executive Mark Neale has admitted the organisation must do more to establish whether or not intermediated investment losses were caused by bad advice.
In his latest monthly blog, published last week, Neale says the FSCS continues to be challenged by the complexity of many failures in the investment intermediation sector, of which he says Catalyst is just the latest.
Neale says: “In order to compensate, the FSCS must establish that a failed business had a liability to the investors advised by an intermediary. But it is often far from straightforward establishing whether an investor’s losses were caused by bad advice or by some other factor – fraud, for example – which the IFA could not readily have foreseen.
“And even once a liability has been established; it can be difficult to quantify the loss where the underlying investment was in an illiquid fund.”
He adds: “These are not excuses. We need to be better at anticipating these issues and addressing them earlier.”
Advisers recently expressed anger over the announcement by the FSCS that a £29.5m interim levy would be imposed on investment advisers following the failures of life settlement firm Catalyst and stockbroker Fyshe Horton Finney.
This is on top of a £78m annual levy on investment advisers for 2013/14.
Many argue the system is unfair as it requires advisers to pay for compensation resulting from failures other than bad advice.
Last month Money Marketing reported that a key part of the justification for Catalyst being in the FSCS investment adviser class had been called into question, which reignited calls for reform of the funding of the compensation system.