2nd June 2020

Advisers, prepare for an FSCS shocker

FSCS pays out on mortgage endowment claims against adviser.

Please say it’s not so. Well I can’t actually and in fact I am amazed that the FSCS is not only paying out on endowment claims, it is paying out on claims that could have been correctly, legitimately dismissed years ago by advisory firms based on the normal complaint barring rules.

Based on a report  by FT Adviser we have followed up with the FSCS and the FCA to get to the bottom of what could look like a very toxic pit.

The facts here are that the FSCS:

Ignores a six year rule

Ignores a six years plus three rule

Ignores if the client was made aware of shortfall potential by way of red or indeed amber letters

Ignores commercial longstop law

And can allow and pay a claim that would normally and legitimately rejected by a trading regulated firm, the FOS and the FCA as they are no longer in business and therefore in default of the FSCS scheme.

You could not make this up, except of course you can in the crazy world of regulation.

By a clever use of the FCA rules such as COMP 8.2.4 01/10/2018, that states:

For claims made in connection with protected investment business, protected home finance mediation or protected non-investment insurance distribution, the FSCS may disregard a defence of limitation where the FSCS considers that it would be reasonable to do so.

In a mail to me this week from the FSCS, they state “that FSCS rules on limitation work differently to time barring for live firms.  FSCS also takes into account the date the firm went into default, and/or the date the firm went into administration/was liquidated, in addition to the date that any ‘red letters’ were sent to the customer and the 15 year ‘longstop’ rule.  This means FSCS is able to consider some endowment claims which would be time barred if considered against a live firm”.

So, as Alan Lakey pointed out to me, a firm can correctly dismsss a claim/ complaint based on the above caveats and if no longer trading for any reason a couple of years later that same complaint can be returned, this time to the FSCS who will accept it and even worse pay out.

This, in my opinion, is just not right. It means that firms still trading are being levied to pay claims that would not be considered if the firm was still trading.

We intend to find out why this is happening, how much as been paid out in claims, how long it has been going on, did the FCA ad FOS know about it!

Keep you posted

Panacea Comment, Regulation