The Financial Services Compensation Scheme has said it is committed to stopping so-called “phoenix” firms dumping liabilities on the lifeboat fund through a strategy it is calling “prevention as well as protection”.
Earlier this year, the FSCS conducted research as part of an internal policy paper on the issue of phoenxing, where financial advisers elect to dissolve their firms and start under a different brand when they become aware of impending complaints.
This can be done multiple times to reinvent the firm on numerous successive occasions, leaving the scheme with increasing liabilities.
As opposed to a solvent firm, which would have to pay out itself for complaints against it through the Financial Ombudsman Service, a firm in liquidation has redress against it paid through the FSCS’ pooled fund which all advisers contribute to.
In a summary of its position provided to Money Marketing, the FSCS says it will gather more data on firms that collapse, passing this on to watchdogs like the FCA to avoid problems resurfacing.
It says: “[We shall] develop the FSCS’ own capacity to collect, collate and pass on actionable intelligence as a result of compensation and recoveries work.
“We shall alert the regulators to directors and advisers responsible for mis-selling and, in particular, help the regulators to prevent these individuals re-inventing themselves elsewhere in the regulated financial services market or the regulated claims management market.”
Money Marketing research from earlier this year estimates that, of the 91 firms declared in dafault by the FSCS between the start of 2018 and the end of July, 46 still had directors listed as active on the FCA Register, and that, overall, more than 40 per cent of directors from the collapsed firms still appeared to be active.
The FSCS note reads: “[We] must be able to step in when financial services firms fail, but the lessons from failure can also prevent repetition or future detriment. FSCS shares with the regulators, the Financial Ombudsman Service, the new Single Financial Guidance Body and the industry the obligation to work collectively to identify and implement the interventions which will prevent future detriment to consumers.
“Failures are a necessary part of functioning markets, but failure arising from mis-selling and poor conduct is avoidable.”
FSCS chief executive Mark Neale says: “We must reduce the risk that incompetent or plain bad advisers re-invent themselves and impose new losses on new consumers.”