4th December 2023
Goodnight Irene
We read that the FCA’s latest ‘CapAd” proposals would require advisers “to calculate their potential redress liabilities at an early stage, set aside enough capital to meet them and report potential redress liabilities to the FCA”.
The idea is that any firm not holding enough capital will be subject to automatic asset retention rules to prevent them from disposing of their assets.???
This is a recipe for disaster for the SME adviser, I do not know how long it will take the FCA to understand the advice market it regulates?
This will see smaller firms cease trading, bigger one’s getting bigger on a feeding frenzy and supposedly more resilient, providing consumers with higher cost advice outcomes.
It will not see “a thriving financial advice market to make sure consumers can access the support they need from financially resilient advice firms that want to do the right thing".
The problem is that it is always about the advice and never the product.
Providers or manufacturers of regulated financial products pretty much all rely on intermediated distribution. The analogous and reflective words of that old music hall song by Billy Bennett could well sum up the lot of smaller advisory firms and the relationship they may have with the firms whose products they advise upon and distribute.
"Its the rich what gets the pleasure, its the poor what gets the blame".
In the scenario this will create, those small firms who have done the right thing for their clients year after year will no longer be able to stand a chance and that is just not fair!
A pointer to this outcome can be found as of summer 2023. Although some 59,079 firms were limited liability companies, the second highest group were 9,346 sole traders whose liabilty is there until they die. They are highly unlikey to hit the FSCS in box as all their assets are on the line.
The average DA firm has 13 customer facing advisers, the average appointed rep firm has 1.8 customer advisers. They are the most vulnerable.
At mid summer this year, 575 firms joined the register along with some 10,012 indviduals. To the same mid summer date 7,739 firms de-authorised seeing 15,206 individuals calling time on a regulated life*. This surely must send a message to the FCA?
The polluter will never pay, my simple solution is that ALL 78,000 (yes everyone including car dealers, funeral plans, CMC’s) regulated firms pay say 3% of annual turnover to the FCA, reinstate the longstop and stop the FOS and FSCS paying claims that are ’out of time’!
This would eventually be a huge fund, perhaps initially underwritten by the Treasury, just like the FSCS, for a year or two. This rethink could reduce the costs of the FOS, FSCS maybe even doing away with the need for PI, reduce capital pressures on smaller firms in particular and make the financial responsibilities that firms should have very well covered by an industry pledge and no more firm failures caused often by poor management compounded by poor regulation and regulatory oversight.
A bit like Lloyds of London, keep it in house. Their motto or pledge is "Fidentia" meaning confidence. I am not sure if the FCA has such simplicity although it does have a mission? The big difference being that confidence is based on historical fact, a mission is an expression of an ideal contained in thousands of pages of a rulebook that probably will not happen.
Not quite the same thing?
While Lloyd’s is adapting its ways and means of transacting claims, the process has essentially remained unchanged for years because it works. In 1992 Lloyd's launched a lifeboat fund for the thousands of 'Names' (those private investors whose wealth secures Lloyd's insurance policies) who had collectively, lost millions of pounds at Lloyd's as a result of a run of long tail, catastrophic claims such as asbestos linked or the Piper Alpha oil rig.
Just a thought?
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