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This week in Regulation

Although the two free case rule protects the vast majority of advisers from ever having to pay a case fee to the FOS, the mere prospect of paying to prove their innocence has always stuck in advisers’ throats.

New proposals from the FOS to restructure the way the scheme is funded could finally set advisers’ minds at rest.

The option of scrapping case fees altogether and paying a much higher annual fee has been put forward. But Aifa is gunning for Option H, which will give firms ten free cases, although case fees would rise significantly to 480. There will also be a flat annual fee per firm of 230, meaning many small firms will pay over 100 more. Aifa says this should protect innocent firms that are currently exceeding their two free case quota, plagued by claims chasers and the endowment misselling crisis.

The ABI has been notably more quiet and says it wants more time to consider the options. One suspects that it is not quite so keen on Option H. Boosting the number of free cases to ten would be largely irrelevant to its members, particularly in light of FOS research, which shows that 26 firms generate 59.1 per cent of complaints and 85 per cent of firms have no cases at all. Larger firms would enjoy a dramatic drop in the annual levy, paying the same flat 230 rate as one man band advisers, but this is unlikely to offset a rocketing case fee bill for many firms.

Given the vast gulf between the complaints profile of the small adviser and the large provider, one suspects that it will not be easy to reach a compromise that is equally satisfactory to both Aifa and the ABI.

Typically, proposals for reform were juxtaposed with a story which taps into many advisers’ lack of confidence in the Ombudsman scheme, making them reluctant to pay anything at all. Last week the FOS was forced to apologise to a retired adviser and a complainant after its front line staff failed to recognise the defunct firm was within its jurisdiction. FOS staff wrote a letter to the complainant saying it could not investigate his complaint because the firm, which had switched to AR status in 1995, had never been directly authorised by the PIA or the FSA. This decision came despite the fact that the FOS had already investigated complaints against the firm, which were thrown out, and was threatening the couple with legal action for refusing to pay their over 1,000 in case fees.

Needless to say, the FOS claimed this was an isolated incident stemming from a problem with its database, which has now been ironed out. It explained that it has inherited a highly complicated jurisdictional patchwork. Such explanations are unlikely to fill retired advisers with confidence. You have to ask – how many times has this happened before? And how many times has the FOS wrongly adjudged a retired adviser to be within its jurisdiction?

Elsewhere, over fifty firms with combined deficits of 4.3m are failing to comply with the FSA’s capital adequacy requirements over a year after they were introduced. The FSA has recently completed a second random investigation into financial resources and compliance with its capital adequacy rules. Although it refuses to name the firms, it says the most common reasons given for not complying were lack of understanding of how to calculate financial resources and poor advice given by some professional advisers.

The news does not paint this small section of the adviser community in a good light, coming so soon after the FSA placed Berkely Berry Birch into administration for failing to plug a 11m hole in its finances. Compliant advisers, which already face spiralling FSCS fees, have a right to be annoyed as firms with inadequate capital reserves are more likely to go into default and dump yet more liabilities onto the compensation scheme.


DTI will scrap audits for smaller companies

The Department of Trade and Industry is set to abolish audit requirements for regulated small firms and appointed representatives. The FSA says the move will save 3,200 small firms and 1,490 ARs £12.9m a year. The DTI will introduce regulations under the Companies Act 1985 to implement the FSA’s proposal as soon as possible. The […]

Lump light

But the report, which is the committee’s response to the Government White Paper on pension proposals, has caused outrage by recommending a review of the tax-free lump sum, which many see as one of the key reasons why people save in pensions. It also recommends a review of higher-rate tax relief.

B&B puts aside 90m for endowments

Bradford and Bingley is setting aside 89.4m against compensation claims for mortgage misselling, which is more than double the 38m it put aside in 2005/06. The total amount of compensation paid out by the industry for missold endowment mortgages has rocketed to 2.3bn. The figure, from FSA research covering 90 per cent of the market, […]

A guide to automatic re-enrolment

Since the introduction of auto-enrolment in 2012, it has been a popular topic in the press. Recent media focus has been geared towards small and micro employers; however attention is set to return to the UK’s largest businesses as they prepare for re-enrolment. Johnson Fleming has produced a useful guide that provides essential information to help you […]


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