The reasons for change are now even more persuasive.
The concept of FSCS derives from the Policyholders Protection Act (PPA), which was based on an insurance principle. Those who had policies covered those consumers whose firms and policies had failed. This was paid as a levy on all insurance companies in ratio to their exposure to all policies in force. As there was far more policyholders than policy claimants each non claimant was only slightly affected by costs or bonus.
The PPA was in effect when those in power eventually woke up to the Equitable Life collapse but to avoid losing face, they did not trigger the scheme. This ended up with a tenfold increase in the losses and then a decade of the Treasury pretending it hadn’t happened.
In 2016, we wrote to Mark Neale CEO of FSCS with a paper called “16 million into 6 million does not go” This explained that the current FSCS has a major design fault.
How could the 16m potential claimants, expect 6m consumers currently receiving advice to pay them. A decreasing number of presently advised consumers paying for an increasing number of claimants. It simply it wouldn’t work.
We received a nebulous response which indicated he couldn’t be bothered to change it. The issue still remains and is now worse. We now have the SIPP players added the same pot. See “Has Carey put us in the right street?”. Has Carey Put Us in the Right Street
From both the regulator’s and politician’s view, as long as some mug is picking up the tab - Happy Days. Providers, very stupidly in my view, have lobbied against a product levy which would immediately correct the 16m v 6m issue and spread the load far more equitably and return FSCS to its original design.
The current danger is that by doing nothing, we will incur ever increasing FSCS and regulatory costs and ride the pony down the hill so that decreasing numbers of firms and consumers are paying for increasing claims.
In time, that will allow the regulators to claim that advisory firms were too small, weak, and generally too pathetic and deserved to be removed from the industry. Many advisers think this has been the plan all along. I have not yet met a regulator that is bright enough to promote it actively but most of them would be willing to witness the crash their actions have created and then walk away.
So, what we can do? Firstly, we stay united. The temptation would be to go on a witch-hunt for “bad” advisers. That has to be avoided. If there are still “bad” advisers, after nearly 40 years of regulation, what does that say about the regulator? If you know of “bad “advisers - why haven’t you told the regulator?
In the 1990s, I helped FIMBRA to clear a veritable swamp of incompetents and ne'er-do-wells. It worked. I had no compunction and I am still happy to retail such evidence to the regulator if you wish. But I will be looking for evidence not - post event wisdom.
It is too easy to blame an undefined group somewhere in the distance. Every despot has created such a group to be the blame hounds for their dictatorship. Currently, there is no shortage of people wishing to force us towards ‘Nineteen Eighty-Four’.
The modern equivalent of “Here be Monsters”. If you believe your FSCS bill is going to be vastly diminished by removing a few “bad” advisers – dream on.
The other potential Red Herring is phoenix-ing companies. Here we have a three-cornered clash between the failure of FOS to observe legal principles, the operation of the Companies Act and Human Rights legislation.
Incredibly the living incompetence that is FOS is now allowed to judge £375,000 claims with no legal process and with no right of appeal. As mentioned in previous blogs, I receive a significant number of FOS decisions, usually far too late to do anything about it.
Each one has the same opening line “I have never had a claim until now but”. What usually follows is FOS avoiding legal principles, particularly on evidence, allowing PI to retire from the field. They are then hit by a claim that takes out the adviser’s firm.
OK, so you are the jury. An adviser with a previous blameless record. Are you happy to ban him or her from the industry without any legal process? Remember it could be you. Is being taken out by FOS a reason for a lifetime ban from the sector? Proven fraud or bad behaviour with due process sure no problem. Exit without legal process is another issue.
Even if you wish to do this and it is unlikely that the Companies House will give ban them from being a director just for a FOS claim. Unless there is fraud involved.
So, we are back to permissions. Whilst the regulation can ban an individual, the FCA are still exposed to Human Rights legislation. This is likely to increase post Brexit.
So, we return to who pays and why. The biggest factors in the FSCS bill is failed regulation and retrospective judgements. Both of which the FCA is allowed to get away with.
The £156m Berkeley Burke Bill is the imposition of a retrospective standard. Both the SIPP providers and advisers failed to raise the funds to challenge this the court. Similarly, advisers fail year on year to fund trade associations and therefore do not have any push back.
So, you hide in your bunker and hope FOS doesn’t take you out. Is that a sustainable business model?
This is our last Blog until September as too many of you are on holiday to make it worth it. Before you wander off on hols, I would like to give you a present.
Please find above “a Round Tuit”. Large numbers of our blog readers tell us they will join when they get “Round Tuit”. So here it is