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Paul Lewis: FSCS funding row misses crucial point

The wrong people are paying the levy and the fund is not going to enough of the right consumers

Consumers of financial services firms are not being given enough compensation when they are missold, misadvised or out-and-out cheated. Or, rather, not enough clients are being given compensation.

We know that because, in most cases, they have to step forward and admit they have let someone missell, misadvise or out-and-out cheat them.

And many are too proud. They may not have even told their loved ones. So, putting their hand up and saying “ahem, can I have some compensation for being a bit silly, please?” is just not them. Inevitably, many will never get the money they are owed from the Financial Services Compensation Scheme.

More evidence of such a missed opportunity comes from two separate government schemes.

Squeezing the FSCS: Providers fight back against increased contributions

In the first, one-and-a-half million people are not claiming free money even though all they have to admit to is lifelong love and living on less than £46,350 (£43,430 in Scotland). As a result, £1bn-plus sits waiting for them in Chancellor Philip Hammond’s coffers. Yes, it is the Marriage Allowance.

People are turning down free sums of £238 this year, next year and every year, rising at least with inflation for the foreseeable future. There is also a potential £900 extra waiting, with backdating available for most who fulfil the conditions.

Despite this, however, around a third of the couples who could spend a few minutes making the simple online claim do not do so.

The lesson has been partly learned in the second case, concerning the rather Orwellian-sounding Ministry of Justice. In 2013, fees of up to £1,200 were introduced for workers who challenged their boss over some aspect of their job such as unfair dismissal, equal pay, race discrimination. You know, the kind of troublemakers who want their boss to obey the law.

Previously, claims to the Employment Tribunal had been free, but following the change, the number of cases inevitably tumbled from around 5,000 a month to little more than 1,000. Overall, around 70 per cent of wrongs remained un-righted. But it did save money. Job done.

Questions were asked, complaints were made and, most importantly, cases were brought. In July 2017, the Supreme Court decided that the MoJ had acted both unlawfully and unconstitutionally by introducing the fees and the MoJ scrapped them. “Ahem,” said MPs, “what about the 1,500 people a month who had stumped up before the judges upheld the rule of law against the MoJ?” Well, there was a redress scheme. People could claim back the £32m it unlawfully took.

Paul Lewis: The end of advice as most know it

But they did not. By the end of December, less than 10 per cent of the money had been repaid to just 3,400 people. The new Lord Chancellor (who is neither a Lord nor the Chancellor) David Gauke claimed that was “reasonable progress” but nevertheless announced the MoJ would now write to all those who had paid the fees, encouraging them to claim back the money they had been charged – normally between £390 and £1,200 each.

So, back to your very own FSCS. I call it “yours” because £88m of the £320m raised in levies last year was paid by investment intermediaries – the good guys who read Money Marketing. Not the rogues, incompetents and crooks who have at best missold and at worst defrauded thousands of innocent customers.

If anyone owns the FSCS it is you lot.

Some, most or even all of those losses can be reimbursed by the “goodwill” of financial advisers. But I know many of you, even the best, would rather not pay this open-ended levy. You pay up because it is a condition of being able to do your job.

I wrote in this column nearly three years ago that you should not have to pay. Of course, someone must. But there is not a major bank that has not been fined for cheating Libor or rigging Forex, not to mention money laundering, mortgage securities fraud or misselling PPI on an industrial scale.

The fines from those could go, as they once did, to reduce the levy paid by the good guys, and the banks should also disgorge the profits made from those illegal acts. If that was not enough, which it might not be, they should pay the balance anyway.

Providers to pay a quarter of advisers’ FSCS bills

They should be the bank of last resort when it comes to customer redress. The recent consultation by the FCA to make them pay 25 per cent of the cost is nowhere near enough. Many advisers told the FCA as much, suggesting they should pay 75 per cent. I say 100 per cent, but that is not an option in the FCA consultations.

The quid pro quo is that the FSCS should do more to find and give compensation the losers. Each month it publishes a list of the firms that are bust, in administration or just plain missing. But it can only reimburse customers directly – or try to – if the bust firm held client money which is still available.

For an adviser failure, it needs clients to come forward and contact them with the necessary details. That can be done online or on the phone, but how many victims do it?

Paul Lewis: Investing in gold

The FSCS should follow the MoJ and write to all the clients of the listed firms encouraging them to claim. It says the numbers would make that unfeasible. So, it would need extra resources, but as a lot more money would be paid out that would be well worthwhile.

Especially as, under my plan you, the good guys, would not pay it. The banks, caught with their fingers in the till so often they are bruised, can afford it – and still make a very healthy profit from retail banking.

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programmeYou can follow him on Twitter @paullewismoney



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. The total amount of banking fines in 2016 was £22,127,442.

    In 2015 £905,219,078 was paid and £1,471,431,800 in 2014.

    The FCA will deduct its costs from these huge amounts and the rest will go to HM Treasury.

    The FCA was obliged by statute to pay away £1.370bn of the 2014 fines to the Treasury.

    That was the equivalent of 70% of all alcohol and tobacco levies for 2014.

    Banking fines are now windfall taxation, not coming from individuals and as such are meaningless.

    The FSCS announced a £337m levy for 2016/17. The FSCS levy in 2015/16 totaled £319m.

    So, over those last 3 years to 2017 some £2.4bn in fines had been levied that could have seen zero FSCS levy for a good number of years with the polluter paying. Just do the math!

    The Treasury trousered the fine windfall money and eased it’s conscience spinning the line that the fines would be used to look after our wounded troops.

  2. To ensure I correctly understood this………..I read it twice! Paul your proposals are welcome but you omit to reflect on one contributory cause, the FOS.The torch shone on this ‘service’ by Channel 4 revealed the extent of unsafe decisions. The consequent awards against advisory firms have the capacity to put these firms out of business and onto the FSCS. Not the largest problem but a contributory one nonetheless. On behalf of the advisory community thank you for your recognition of the ‘good guys’!!

  3. Julian Stevens 17th May 2018 at 1:44 pm

    The “crucial point” regarding the FSCS is that the FCA is failing dismally to stem the quantum of liabilities it’s constantly taking on. Unless and until its starts doing so, those liabilities will continue to grow and grow unchecked, like an all-pervading cancer.

  4. Anthony Fallon 17th May 2018 at 5:47 pm

    To ensure I correctly understood this……… I also read it twice!

    Paul your proposals are welcome but you omit to reflect on the main contributory cause – the FCA & Government and the lack of proper Regulation. There has been huge amounts of articles, like this one, & commentaries & FCA Consultation(s) about the funding of the FSCS, and in the meantime what, if anything, has improved about the Regulatory landscape – Nothing as far as I can see.

    Where is the Regulator and what is being done to protect all Clients from the rogues inviting huge swathes of people with little or no investment experience to invest in UCIS & other weird non-regulated “investments” ?

    FSCS funding will continue to inexorably increase until something is done to stop the cause(s) of the problem. How hard would it be for the FCA to tweak the rules to only allow UCIS etc.(at least for pension funds) to be accessed only by “sophisticated and high net worth investors”(COBS 4.12.6) ?

    At least, now that the providers have been invited to this FSCS “funding party”, we can only hope they bring a bigger clout to get the FCA to treat the cause of the problem.

  5. An artilce mosty advsiers woudl agree with and comment from Derek Bradley that show just wahta croc of XXXX the trusering of the fines was to support wounded servicepeople when that was already a responsibility as part of the military covenant whch should have been met from general taxation.

  6. Simon Webster 21st May 2018 at 9:21 am

    The truth is PAUL LEWIS misses the point. “Can I have some compensation for being a bit silly…”

    THAT’s the real issue. If clients are silly or choose to take a punt that does not come off why should someone else always have to pay??? Why does it have to be someone else’s fault??? What happened to personal responsibility???

    • Julian Stevens 23rd May 2018 at 6:47 pm

      The real problem is incompetent regulation, Simon, not innocent people who simply don’t possess the necessary experience and knowledge to realise that they’ve been duped into believing that they’ve been given sound advice.

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