FSCS welcomes big step forward in preventing phoenixing
FSCS provides statement on the FCA’s new consultation paper aimed at tackling phoenixing
As a result of close work between the Financial Services Compensation Scheme (FSCS) and the Financial Conduct Authority (FCA), new rules have been proposed in a consultation paper today to tackle the practice of ‘phoenixing’ in the market.
Phoenixing refers to the practice of firms or individuals deliberately escaping their liabilities by closing down their business or resigning, only to re-emerge in another guise. Specifically, the proposed rules cover the poor practice of ex-financial advisers becoming authorised as Claims Management Companies (CMCs) and then targeting their former clients, who they misadvised, to claim on their behalf with FSCS.
This behaviour not only costs consumers (these CMCs can charge up to 40% of any compensation awarded in fees, with the FCA currently consulting on a fee cap) but also causes reputational damage for the industry and poses unfair competition to those CMCs doing honest work for their customers.
If the proposals go through, it will mean authorised CMCs will be banned from making claims with FSCS for customers where they have a direct or indirect connection to the subject of the claim.
Caroline Rainbird, FSCS Chief Executive, said:
“FSCS has proven incredibly effective at identifying cases of phoenixing and sharing them with the FCA and others. We have reported over 120 cases of this type of phoenixing, but frustratingly action was not always possible as much of the behaviour we were seeing was not explicitly against the FCA rules. However, these proposals change that, and rightly mean these practices will be banned.
“Customers can claim directly with FSCS for free, but if they choose to pay what can be a significant portion of their compensation to a regulated CMC, they should feel confident that their chosen CMC is acting in their best interests.
“This progress is a direct result of FSCS and the FCA proactively working together on this issue and demonstrates the power of FSCS’s unique perspective as an independent claims service.”
Marshall Bailey, FSCS Chair, added:
“Building consumer confidence is vital for everyone in our industry and there are many CMCs doing great work, giving people choice on how they make a claim. Instilling better standards such as those being proposed today will keep bad actors out of the market, which will help protect vulnerable consumers from poor outcomes and drive down the FSCS levy that follows.
“These proposals are undoubtedly a big step forward. FSCS will continue to be actively involved in preventing harm and finding the right balance between consumer protection and consumer responsibility. Collaborating with the FCA and others in this mission remains a core part of FSCS’s strategy.”
Anthony Ozimic | t: 020 7375 8638 | m: 07939 177683
James Tweed | t: 020 7375 8646
Notes to editors
In April 2019 FSCS became a founding member of the Phoenixing Group alongside the FCA, the Financial Ombudsman Service and other industry partners.
FSCS’s customers can choose to use a representative to help them make a claim. These proposed rules will only apply to CMCs regulated by the FCA. In the 2020/21 financial year, just under 70% of the customers who used a representative chose a CMC. The others used the services of another type of representative, for example, a Solicitor.