New FSA consumer redress powers could have "catastrophic" implications for advisers who have not conducted proper platforms due diligence, warns Capita Financial Software.
New FSA powers, which came into force this week, require businesses to set up collective redress schemes where the regulator sees evidence of widespread failings.
But Capita Financial Software business development director William Watling says this raises the spectre of class action lawsuits being issued by clients against their advisers' choice of platform.
"If a client proved they had been detrimentally impacted by an adviser's choice of platform - for example, they could have got certain funds or wrappers cheaper elsewhere - that could potentially mean any client on the same platform impacted in the same way has a right to collective redress," he says.
"I am concerned by this and think it is an important question to be raised. If you have hundreds of clients filing class actions, this could be catastrophic."
Watling says the regulator's new powers could also have a significant impact on advisers using just one platform.
"If there is one market where IFAs do things in one way, it is the wrap and platform space," he says.
The FSA recently indicated advisers can still label themselves as independent despite using just a single platform as long as their clients are all of a similar kind.
AT8 director Mark Thelwell says the FSA's new redress powers - part of April's Financial Services Act 2010 - could potentially have significant ramifications but are only likely to be used in extreme cases.
"There would have to be widespread evidence of people failing to apply principles in the client interest for these powers to be invoked, requiring some high hurdles for the FSA to go through," he says.
"They certainly have the armoury to hand but they would likely only use it in extreme circumstances."
But he adds the new powers will ramp up the pressure on advisers to conduct rigorous due diligence.
"These powers will still be a threat in the background so advisers need to make sure they go through the proper processes and, if this hasn't been done recently, then this needs to be revisited."
He also suggests advisers will find it difficult to use just one platform without falling foul of the FSA's rigid guidelines.
"In reality, when you listen to all of the FSA criteria it is difficult to come up with a client segmentation strategy so narrowly defined as to allow all clients to sit on one platform."
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