Member Article

FSCS longstop conundrum

The removal of the ‘longstop’ protection from advisers is for many like a weeping sore.

The removal of the longstop was a quite calculated, not too well consulted upon, result of the process of implementing Financial Services and Markets Act 2000. There are many who consider the removal unlawful.

Peter Hamilton writing in May 2011 for Money Marketing, “there is so close a structural connection between the FOS and the FSA as to cast doubt on whether the FOS can be regarded as independent of the regulator. Thus, for example, the FSA appoints and may dismiss the chairman and directors of the FOS. The chief ombudsman and the FOS must report to the FSA on the discharge of their functions and the FSA must approve the budget of the FOS”.

Ms Ceeney said in an interview with FT Adviser “the main issue is that financial products are often bought many years before an individual needs them, such as a pension plan. The longstop would mean there is no way of coming back if sold an investment product for many years down the line. The problem is the nature of financial services is very different to other industries because you won’t find out until many years later – that was the case with mortgage endowments.”

The point that seems to be missed by all those in Regulation Street opposed to the re-instatement of the longstop, is that the removal flies in the face of the protection laws of the land, bestowed upon UK citizens and now, it would seem, afforded to all except advisers.

Regulation may not always be fair in the eyes of those who fall under its ‘spell’, but one cannot simply disenfranchise one particular business community or indeed any community from another in such a way.

So imagine our surprise when some long held suspicions were confirmed last week. The FSCS recognises the longstop. In response to an FOI request issued after a discussion on the matter with Alan Lakey, I was not entirely surprised to see that with the FSCS, they are clear that a “claim against a firm must be made within 15 years from the date the firm arranged a policy, or else the firm had been declared in default by the FSCS within the same fifteen year period”

So, how perverse, how unfair is this. The fund of last resort is in fact not anymore. That mantle has been passed, courtesy of the FSA, continued by the FCA, to be visited upon by the little guy, the small, unincorporated one man band by the FOS.

The FSCS is bound by the limitation act and derives its power and direction from the FSA, now the FCA.

Advisers are denied this protection by the same source. #hypocritical

This was posted in Bdaily's Members' News section by Panacea Adviser .