You may or may not be aware that the Financial Services Compensation Scheme (FSCS) not only protects against insolvency for banking deposits, it also covers private pensions, investments, insurance. It also covers financial advice up to a £50,000 limit if a financial adviser has become insolvency and you have a claim for mis-selling or negligent advice.
The issue today is that whilst the whole of the finance industry funds the FSCS by levy, there is a huge claims compensation out there, fuelled by claims management companies that means not just the finance industry but also the FSCS is awash with claims and compensation to be paid, some of it, as we all know being false or overstated.
There has been an issue for many years that financial firms are paying too much in levies to fund what is essentially a ‘broken system’.
The Financial Conduct Authority (FCA) is aware of the problem and already, it is has estimated for tax year 2020/21 that £330m has been set aside for compensation for claims where financial advisers have closed to business due to mis-selling compensation claims, unable to meet their liabilities.
The good advisers end up paying for the bad.
As part of its review of compensation, the FCA has proposed a number of changes to the FSCS, one notable one is to remove protection for financial advice negligence. The FCA is seeking feedback on the suggestion.
We believe the consumer needs protection from rogue advisers but a whole review is also needed on the professional indemnity insurance front too. Our suggestions:
The whole situation is a mess. It is any wonder that complaints are spiralling out of control and there appears to be no downside to a consumer (or claims company) complaining, even when they are stretching the truth.