The FCA has recently released its Business Plan for 2021/22; this is the first for new CEO Nikhil Rathi. Naturally what interests me is how the FCA intends to deal with bad behaviour in the financial sector and the business plan sets out the FCA’s intention to tackle the rogues.

    We have all watched in horror as the number of firms going to the wall leaving their clients to claim from the FSCS has soared. If you hadn’t been following those stories, the arrival of another demand for FSCS levies could not have escaped your notice. 

    So what does the FCA plan to do about it? 

    Well, they propose ‘Using new approaches to find issues and harm faster’ and by this they mean ‘evaluate our efforts to reduce disorderly failure by monitoring the value and volume of Financial Services Compensation Scheme (FSCS) claims, with the aim of reducing these over a multi-year period to bring down the FSCS levy on the industry’. Unfortunately, this seems rather obvious and leaves a number of horses running through fields with the stable door bolted several furlongs away. If you haven’t thrown your laptop against the wall in frustration that this could be described as a ‘new approach’ then take a deep breath and keep reading. 

    They also identify Tackling misconduct to maintain trust and integrity: We expect our increased capability to detect signs of misconduct and act faster will lead to an initial increase in the number of firms whose permissions we remove either permanently or temporarily,’ as one of those new approaches. And this has to be right, but this isn’t a new power, and what will they do to protect the consumer once the permissions have been removed? It doesn’t go far enough.   

    Back in the latter end of 2017 the FCA, entirely rightly, stepped in where they identified a slew of steelworkers being wrongly advised to transfer out of their DB scheme and nine firms voluntarily gave up their pension transfer permissions. All good; ‘Well done the FCA’, you may say, crisis averted. But no, the British Steel scandal was still ongoing and the steps taken by the FCA, laudable as they were, barely touched the surface. 

    Those nine firms stopped undertaking DB transfer work, but those steelworkers who were still being advised simply went to another adviser and no harm was prevented. For those clients who had already been transferred, the FCA took no steps to preserve the PI insurance. The insurers OF COURSE excluded liability for those DB transfers at the earliest opportunity and not only were the clients left without recourse, but the firm found itself without insurance cover. Six out of those nine firms are now in liquidation with claims being made to the FSCS for the losses suffered where bad advice was given. 

    This approach has now left the FCA with a number of problems

    The burden on you, levy payers, significant consumer harm because the FSCS compensation limits often mean that the client is significantly undercompensated and financial advisers who will simply start afresh elsewhere. The knots which the FCA is now having to tie itself into in order to deal with the bed they have made themselves, is mind boggling.

    If proper Professional Indemnity insurance were a requirement for all financial firms, many of these problems would significantly reduce, if not disappear. Regulating a huge sector of the economy without robust insurance requirements in place is a recipe for disaster – a disaster like British Steel where thousands of people will remain undercompensated and the blameless firms will pay the price. 

    The FCA’s business plan is missing one essential piece

    A change to the regulations to increase the minimum level of indemnity (say, £3m per claim), to require insurance for all past business (removing the market for insurers to offer insurance with exclusions) and to prevent insurers from cancelling the insurance until a replacement insurance policy is in place. 

    This is not pie in the sky, nor unreasonable. It is precisely the insurance obligation put in place by the Solicitors Regulatory Authority for all solicitors. 

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