Firms should pay own claims - FSA

The suggestion forms part of the regulator’s latest discussion paper considering the issue of mis-selling and capital adequacy levels across the personal investment market.

According to the FSA, the key benefit of firms mitigating the impact of mis-selling themselves would be consumers would be more likely to be compensated in full.

This is, it says, because the £48,000 cap on the level of compensation the FSCS can pay can sometimes leave claims only partially fulfilled.

In addition, the regulator says the detriment to FSCS levy payers – that is all FSA-regulated adviser firms – would be reduced as only the “polluter” would pay.

Finally the FSA says the consumer would likely be paid quicker rather than going through the process of applying for compensation through the FSCS.

The regulator says current capital adequacy requirements are too low and suggests a risk based approach to setting capital adequacy may be more suitable.

It also suggests a move away from a flat rate because current requirements may be either too high or too low depending on the firm’s risk profile.

The paper also asks product providers to take some responsibility for claims that arise from policies sold years in the past.

The FSA says increasing capital adequacy could have the effect of “incentivising firms to move to business models that involve less risk of poor outcomes for consumers”.

It continues: “current incentives in the advice market where most advisers are remunerated by commission payments from providers may mean that advisers act in their own interests rather than customers.”

Alex Roy, the ABI’s assistant director, distribution reform, says: “The whole financial services sector will benefit if the capital base of intermediary firms is overhauled and simplified.

“Not only will consumers be better protected, but firms will also be more able to invest in new technology and improve standards of customer service.

“This will have a positive impact on consumer confidence in financial services generally.

“The ABI supports today’s moves by the FSA to conduct more robust assessments of intermediaries’ capital requirements and to require firms to meet a minimum standard.”

If you would like to comment on this story, contact:

Scott Sinclair
News Editor
020 7034 2636
[email protected]

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