Case study: Recoveries work
FFSCS has a statutory duty, in certain circumstances, to pursue recoveries in accordance with its rules, in order to offset against future levies or refund the industry. These funds can also sometimes be used to pay further monies to customers with uncompensated losses.
FSCS has recovered just under £300 million* over the past five years from failed financial services firms. These sums reduced FSCS levies on the industry.
In addition, FSCS recovered billions of pounds following the resolutions of the 2008 banking failures, where FSCS needed to take out loans totalling approximately £20 billion from the Government at the time of the financial crisis. Those loans have now been repaid in full, largely through FSCS’s recoveries work.
In order to reduce the costs of compensation for its levy payers, FSCS seeks to recover amounts paid in compensation from any party that it considers has a legal responsibility. As part of the process of paying compensation, the legal rights of our customers are transferred to FSCS. FSCS then “stands in the shoes” of its customers in pursuing any recovery action.
A recovery action is a legal claim which FSCS pursues in order to recover the compensation it has paid to customers, whether through a formal insolvency process, through litigation or some form of dispute resolution. In pursuing recoveries, FSCS must apply what is in essence a commercial test – is the recovery worth pursuing, and is the defendant good for the money? It doesn’t pursue recoveries just to make a point or to punish the parties in question.
In taking recoveries action, FSCS increasingly deals with a number of other Government agencies, such as the Financial Conduct Authority (FCA), the Serious Fraud Office (SFO) and the Insolvency Service. FSCS also deals very regularly with a wide range of insolvency practitioners (IPs).
The usual avenues of recovery we pursue include actions against failed firms and their Professional Indemnity insurers. Increasingly, however, we are taking ever more complex recoveries action and in those instances we tend to make use of our panel of law firms, who have both the expertise and jurisdictional reach to assist us.
In addition to the more usual avenues of recovery, FSCS has been involved in some high-profile, high-value and complex recoveries work in recent times:
- Keydata litigation: court proceedings against a large number of IFA firms in relation to their mis-selling of Lifemark investments – a large and complex piece of litigation against hundreds of IFAs, resulting in recoveries of over£128 million.
- PPI litigation: court proceedings against a number of lenders
for undisclosed and excessive commissions as part of PPI arrangements, resulting in recoveries of just under £20 million.
- Harlequin: a collection of companies involved in the marketing, sales and development of overseas investment properties. FSCS is currently pursuing recoveries against various Harlequin entities, largely through the insolvencies which are already on foot in the UK and the Caribbean.
Recoveries will play an essential role in our new strategy for the 2020s.
*1 From FY 2014/15 to FY 2018/19 year-to-date to 31 Jan 2019. This figure is gross i.e. before any amounts repaid to customers with claims over FSCS’s compensation limits. Calculating recoveries income can involve complex accounting and figures can differ according to which methodology is used. Nonetheless, in any given year FSCS saves the financial services industry millions of pounds through recoveries.