Compliance chief blasts 'disgrace' of unregulated investments

02 Nov 2016

The way unregulated investments are presented to consumers is a ‘disgrace’, the chairman of a compliance firm says.

Ken Davy, chairman of the SimplyBiz Group, also claimed the current model for FSCS funding is a “grotesque injustice” and called for reform.

Following the FCA launching a new Mission statement, Mr Davy said these matters needed to be central in the regulator’s refined strategy.

Mr Davy said: “Protecting clients from poor outcomes from unregulated investments is vital so a great deal more has to be done to ensure that consumers understand when a product is unregulated.

“Frankly, the lack of clarity in respect of the promotion of such investments is a disgrace. Whilst some of these products may be legitimately suitable for some clients in some circumstances, far too many are not in fact investments at all. If the FCA's mission statement addresses this properly it will be good for consumers and financial advisers alike.”

Mr Davy was encouraged that the FCA Mission Statement included a pledge to clarify its stance on unregulated products.

In a white paper, Mr Davy outlined why he believes the current FSCS funding model is unfair, saying FOS statistics showed advisers have relatively few complaints indiviudally.

He said: “In a 30 year plus career an adviser is unlikely to have more than one complaint upheld against them, which we suggest is a record most professionals would envy. It is also unlikely in the extreme, that the cost of settling an upheld complaint will exceed £5,000.

“Against this reality even quite small advisory firms are being charged thousands of pounds per year to fund the FSCS caused by firms whose advice has been careless, reckless or dishonest and who have subsequently gone out of business.”

Many of the liabilities fallen on the FSCS have been a result of product failures and/or corporate fraud, rather than bad advice, he said.

He said that the current method, “where the costs fall entirely on the advisory sector, is so unfair as to be a grotesque injustice”.

FCA chief executive Andrew Bailey has announced that a new product levy is to be considered as part of the review of the FSCS.

Mr Bailey said the FCA was looking at “the possibility of risk-based levies related to the products or services a firm offers, its capital reserves or complaints reported”.

He said: “We are aware that some sectors of the industry are keen to fund the FSCS through a product levy, and we will be considering this proposal in our consultation.”

The FCA is looking at the relationship between FSCS funding and the professional indemnity insurance held by firms, in particular whether a separate review is required of the PII market.

Other potential moves include “smoothing firms' levy contribution by, for example, merging certain funding classes or through more extensive use of the FSCS credit facility”.

The FCA plans to publish a public consultation paper at the end of November outlining a range of proposals to “enhance the current funding model”.

Final rules should be in place by the summer of 2017, with the new arrangements taking effect from the 2018-19 levy year, Mr Bailey said.


Testimonials

"We joined SimplyBiz in 2010, having been members of the Sesame Network in one guise or another for nearly 10 years. We decided to leave the network because we felt that in the latter years we were just a number and it was beginning to feel like being back at school!  I have to say that the SimplyBiz approach is totally refreshing and that we feel in control of our own business again, whilst still having a good robust compliance support provider to guide us. We have since recommended SimplyBiz to other colleagues and would have no hesitation in doing so again."

Grant Kingston
Braintree

Read More

Latest News

Ken Davy: "Dump those bad apples and embrace SM&CR"

August 10, 2017

It only takes a few rotten apples to add some very big numbers to every good adviser’s FSCS bill, so anything that will help us rid our sector of them is to be welcomed.

Read more >

Ken Davy: "Taking a weather check on pension freedoms"

August 02, 2017

BBC weatherman Michael Fish famously failed to forecast the hurricane in October 1987, which overnight destroyed 15m trees and turned the town of Sevenoaks into just one oak.

Read more >

Ken Davy: Revised managers' regime will uncover 'reckless and criminal' firms

July 28, 2017

The Financial Conduct Authority’s extension of the senior managers’ regime will help weed out “reckless and criminal firms”, financial adviser support firm SimplyBiz Group says.

Read more >

Ken Davy: "Good financial advice means more holiday cash"

July 26, 2017

As you prepare for a well-earned summer break, I urge you to reflect upon some detailed research by ILC-UK into the value of financial advice, which has revealed that even those consumers who are just getting by can be more than £40,000 better off if they receive advice.

Read more >