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FSCS hopes to recover £75m from Keydata battles

by Michelle Abrego on Feb 06, 2013 at 15:22

FSCS hopes to recover £75m from Keydata battles

The Financial Services Compensation Scheme (FSCS) has issued a £76 million levy to investment intermediaries for 2013/14 and announced that it is hoping to recover £75 million from its efforts to pursue recoveries on Keydata.

In its proposals for its 2013/14 plan and budget, the FSCS said financial services companies will pay £311 million to cover costs of compensation, up from £265 million in 2012/13.

The FSCS said it is expecting to recover £75 million from the assets of Keydata Investment Services and the underlying investments and claims against the advisers that sold Keydata over the next two to three years. 

It added that it was monitoring the costs of pursuing those advisers, after its costs for recovery in 2012/13 rose from £3.8 million to £7.7 million, with similar levels expected in 2013/14.

It did not disclose how much it has recovered so far, saying only it is 'claiming significant recoveries' from both Lifemark entity and adviser firms.

‘This requires significant investment in preparing and prosecuting claims against intermediaries in particular, but FSCS has been keen to apply a commercial analysis to its approach to recoveries in the interests of the levy payers,' it said.

A spokeswoman from the FSCS said that the £75 million does not include the £30 million recovered from Norwich & Peterborough Building Society.

For 2013/14 the FSCS said it continued to see significant claim volumes within the investment intermediation sector arising from the defaults of Worldspreads, Pritchard Stockbrokers and other investment firms.

'Volumes of claims arising from smaller stockbrokers and general investment claims look to remain about the same next year. This is an area where we have seen the most volatility of claims volumes and impact of larger failures in recent years, so our assumptions are subject to change,' it said.

Life and pensions intermediaries have seen a significant increase in their portion of the levy from £46 million to £17 million.

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50 comments so far. Why not have your say?

JonnieB666

Feb 06, 2013 at 13:15

Thanks!

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Dominic Thomas

Feb 06, 2013 at 13:21

what on earth have these claims to do with IFAs???

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Smithling

Feb 06, 2013 at 13:22

tip of the iceberg

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Stephen Lyth via mobile

Feb 06, 2013 at 13:22

Sick of paying for the poor performance of the Regulatory Authorities to be honest. At this rate, there will be nobody left to regulate in any event

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Paul Barnard

Feb 06, 2013 at 13:25

As Dominic says - what have Pritchards Stockbrokers to do with IFA's? I can't even advise on individual shares!

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David Bosworth

Feb 06, 2013 at 13:27

Why do these levies fall on us and not the tax payer in general ?

Us as individuals are no more responsible than the UK taxpayer so the burden should fall on us all............just like the banking bailout !

Another kick for us

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Andrew burnside

Feb 06, 2013 at 13:27

Marvellous... As usual the little fish will be paying for the failings of the big fish.

a bit like insuring your car and finding out you had to pay an extra premium when the Costa Concordia grounded. Oh silly me, the rest of the world doesn't work like the FSCS. So unfair but as its difficult to solve its left as it is, unfair.

Maybe the treasury could use some of the £390m fine RBS has been given today.......

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DEREK BRADLEY

Feb 06, 2013 at 13:31

Our FSCS survey of 491 IFAs conducted in August 2012 collected both quantitative and qualitative data. It was sent to the FSA, do read the report, with this news it makes interesting reading when revisited.

http://www.panaceaadviser.com/main/st7031.htm

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SteveO

Feb 06, 2013 at 13:33

Thought I was going to read this was the Bill to Andrew Fisher alone

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Scrapheap

Feb 06, 2013 at 13:35

Great stuff - and even better there's less of us around to pick up the bill now too.

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Scrapheap

Feb 06, 2013 at 13:41

Re Keydata:

It added that it was monitoring the costs of pursuing those advisers, after its costs for recovery in 2012/13 rose from £3.8 million to £7.7 million, with similar levels expected in 2013/14. ‘This requires significant investment in preparing and prosecuting claims against intermediaries in particular, but FSCS has been keen to apply a commercial analysis to its approach to recoveries in the interests of the levy payers

My commercial analysis is they can clock up as much legal fees as they like as it's the investment intermediary class picking up these bills but even better, the recovered monies will be first paid to the fund manager class not the investment intermediation class.

How do you overshoot legal fees by over 100% of budget unless the budget was deliberately set low first of all for PR reasons?

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Chris Geeson

Feb 06, 2013 at 13:41

I wonder if we will ever see a headline that says our governing body stopped a company from implementing a major fraud/ non compliant/ illegal practice and that it saved us from millions on the levy. Flying pigs I'm sure that was flying pigs I just saw.

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Julian Stevens

Feb 06, 2013 at 13:43

No negotiation or consultation on any of this, of course, not least with a view to establishing whether or not those who are going to have to pay all these levies consider them to be remotely fair or appropriate. Such is the world of regulation ~ pay up or pack up.

And I do hate these blasted pop-ups.

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the quizmaster

Feb 06, 2013 at 13:45

Never seen a doctor pay the compensation for bad boob implants done by another doctor. so why are we paying for company failure and bad investment advise provided by someone who I don't know, never met and can't control.

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rick atkinson via mobile

Feb 06, 2013 at 13:47

Have just lost a load of money on lottery cards. Ok, so you dont know me, youd never have told me to have a go in the first place and youve never ever suggested such a course of action for anyone ever.

Tough! You're to blame and its your fault.

Now send me your money or i'll make sure you never work again.

Seems fair to me.

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Knowledgable insider

Feb 06, 2013 at 13:53

I was under the impression that pursuing advisers who sold Key Data was not going ahead as the legal issues were not sound. Is this a different issue as my understanding was that the FSCS had compensated investors and was seeking to gain this compensation from such advisers.

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Jonathan Kirby

Feb 06, 2013 at 14:18

Can the journalists at Citywire come up with a figure for the number of people left to pick up this bill post RDR?

My guess is that compared with say 3 years ago there will be at least 30% less so the increase isn't simply the unfair additional cost, but picking up the tab for all those who are left.

Such unfair practices are not without precedent though.

We are treated as if we are also guilty, they just haven't caught us out.

I remember 30 years ago being told by someone at the Inland Revenue that the reason the self employed have to pay class 4 NI which they get nothing for is that the tax-man assumes that if you are self-employed you are fiddling your tax!

Oh, and this was by someone who was an investigator for them who always liked to pay cash for a discount when he had work done for him.

Makes you sick.

Rant over.

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Scrapheap

Feb 06, 2013 at 14:19

KI - what gave you that impression?

The defence is that there are many issues which make the FSCS/HS claim look questionable but nothings been reported to say they weren't still shaking the selling IFA trees for money as hard as ever.

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Michael Brown

Feb 06, 2013 at 14:23

So FSA costs last year doubled and more. PII nearly trebled and now even more?

I fell a bit like a debtor "But I have no more to give" Does not matter say the FSA pay up or else you are out!

Whilst I understand stockbrokers etc are in my "pile" to reduce my previous costs. Why I ask can not the FSCS have more areas? Perhaps they can only add up to 2 where the big numbers are irrelevant!

If there is to be financial advice this has to change from the industry to the tax payer above a certain amount. After all legal aid is available to millionaires apparently, one Mr Adir, ex Poly Peck comes to mind!

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David Hatton

Feb 06, 2013 at 14:31

Damn!! And having just completed my business proposition on fees, costs & charges as well ready for the FSA call!

Never mind though I reckon because of the continually shifting sands the FSA are going to conduct a thematic review of this to account for our increases?

(Mind you that will put their costs up) Shafted which ever way!

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Hickky

Feb 06, 2013 at 14:33

In court, those found guilty and fined, have to pay a 'tax' on their fine to pay compensation for, what I think is, the Criminal Injury Compensation Fund. (.

This effectively means that, in law, the guilty (as a class) pay for the immoral behaviours of the other guilty.

But the rules adopted by the law are not good enough for us, oh no!

In our case the innocent pay for the guilty.

Why not base the FSCS levy on numbers of valid complaints received by the FOS every year? If nil, then no levy. If more than 2, per authorised firm/Network, then pay as a percentage of the total levy in proportion to your upheld complaints.

However those directors/owners who allow the FSCS to be involved following voluntary liquidation, must bear more responsability.

If they have been seen to rape the firm of cash in the last 5 years, sanctioned unauthorised investments that went sour, used methods of by passing regulations, like unregulated advice or websites giving a biased view of an investment, then these individuals and their families, must be able to have their assets siezed to compensate, just like the 'proceeds of crime act' allows.

For too long we have been too tolerant of the unethical practices of certain advisory firms and other financial institutions, and only moan endlessly (like I do) about them. We must lobby the FCA and MPs to start prosecuting these miscreants, and ensure there is a fair system going forward that places the rights of the innocent above the guilty. The concerns of the advisory community must be listened to in order to soften some of the more ineffective demands of the regulator and their various attached bureaucratic appendages.

Let us go forward on the search for sunlight after the rain. Every adviser is a freeborn citizen! Man the barracades, hunt down the guilty. Ici Madame Guillotine! Liberte Equalite, Fraternite. Mes Braves, aller de l'avant!

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Julian Stevens

Feb 06, 2013 at 14:34

Since when, in the absence of any body with the authority to challenge them and if necessary block any proposed course of action, did either the FSA or the FSCS give a stuff about moral or legal considerations? They just do whatever they want and the rest of us have to pay.

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Michael Brown

Feb 06, 2013 at 14:42

@Hikky

From you comments you must of enjoyed Les Misrables?

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Knowledgable insider

Feb 06, 2013 at 14:42

The blame for the invincibility of the regulator is 100% the Government's as the FSA acts as a nice shield when anything goes wrong! For this reason this cowardly lot that run the country will not disband the FSA or interfere in any way as its very existance protects them. So instead of wingeing about the FSA blame the government as if they felt for one minute that votes were at stake they might consider doing something.

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Jonathan Kirby

Feb 06, 2013 at 15:03

@ Knowledgeable Insider

The snag is:

a) there are no longer enough IFA's left to make any difference to the votes.

b) Vote this lot out and you get another load of snollygosters who will do sweet fa.

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John Burchett

Feb 06, 2013 at 15:17

Kowledgable insider.

Watch "Yes Minister" and then think about who really runs the country. It may be an amusing programme but it highlights that the Senior Civil Servants in their secure permanent positions are really responsible for most of our woes.

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James

Feb 06, 2013 at 15:20

"The FSCS said it is expecting to recover £75 million from advisers who sold Keydata over the next two to three years."

Err, I don't think so. Very shaky grounds for the claims as the advisers cannot be held responsible for the losses.

I guess Herbert Shyster aren't on a no win, no fee deal then. And seeing as the FSCS can just bump up their levies, what incentive is their on Herbert Shyster to keep a lid on their fees?

Yet more corruption......

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complacency rules

Feb 06, 2013 at 15:26

The FSCS should be a last recourse rather than the first resource for compensation. However I do not agree with paying a levy to protect the adviser, product provider and the PI insurers from the consequences of bad advice. If the regulatory bodies did their jobs properly by pursuing the individuals to the extent of their personal assets, and the PI insurers and providers who try to wriggle out of their committments, rather than the easy targets of the Advisers, then there would be nothing like the extent of the calls on the FSCS.

I agree with the principle of paying a levy to a fund which is used as the ultimate long stop to compensate the investor from the consequences of bad advice. However, all the other avenues should be pursued first. not least of which should be proper pre-emptive regulation.

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Dominic Thomas

Feb 06, 2013 at 15:31

Am I being a little too simplistic to say that £76m between say 20,000 advisers is about £3,800 each, but in reality the fee relates to income derived from investments. Has anyone got a half-decent rule of thumb for how much we are all going to cough up on this one? As asked before, how many "investment intermediaries" which I gather to mean restricted AND IFA / or intermediary firms does this include? ... even roughly?

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John Phillips

Feb 06, 2013 at 15:35

Why don't they give some of the money they have raised in fines to the FSCS so there is surficient funds avalable without a levey?

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Knowledgable insider

Feb 06, 2013 at 15:38

Jonathan Kirby &

John Burchett.....Prior to the last election I attended a meeting where John Redwood MP was a platform speaker he seemed to me very aware of the nonsense that the FSA was responsible for and made it quite clear that if elected the Tories would weed out much of the rubbish. He even went so far as commenting on specific FSA practices that he considered nonsense! Unfirtunately under Camerons leadership Redwood didn't fit in with DC's Loveies and instead we have the weak do nothings taht we are stuck with. Sants was so convinced that what i have just said was about to happen that he resigned ! Once he realised what a wet drip Osborne is he quickly allowed himeself to be talked into rescinding his resignation much to the dissapoint of mmany of us.

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Smithling

Feb 06, 2013 at 15:40

@ complacency rules.

Let's be realistic. If you were a PI insurer and there was no wiggle room, you'd just refuse to insure and get out the IFA market all together. I'd just go and sell my products to areas of the market that have a competent regulator instead.

Then we'd all be out of a job as you can't practice without it.

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Michael Brown

Feb 06, 2013 at 15:42

@Dominic

As there are less advisers this year, Barclays, HSBC etc. not being in the oven with us one can only assume that last years fees are about to increase by a further 25%?

God, I do hope that I am wrong though!

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Ian Lees

Feb 06, 2013 at 15:51

Looking at the various surveys - it is very clear the illegal, immoral and reckless selling has been caused by the now insolvent banks - who after generating so much income for the Directors and shareholders and employees - have suddenly slipped underneath the radar - in the most deceitful and unprofessional manner - and expect IFA's to pick up the tab for their dishonesty . The dysfunctional MPs and Government - and the FSA - who are hell bent on destorying Independent Advice - indendent advisers - the small businesses they run and theri employees and ancilliary services - means further destruction to the UK community - or as we know it Recession Three !.

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Julian Stevens

Feb 06, 2013 at 15:55

It might be argued that the Tories have weeded out much of the rubbish ~ by pouring weed killer on the FSA. The big question is the nature of its successor body.

As for pre-election manifesto promises ~ surely you didn't set any store by any of those did you?

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complacency rules

Feb 06, 2013 at 15:58

@smithling

Not sure I agree. If advisers do not have the right type of cover now then they should not be practicing at all. But if they do recommend products or indulge in activities which their policies do not cover then they be pursued to the full extent of their personal assets because they are acting recklessly. The same principle should also apply to providers who will be extra careful to ensure that their products etc are compliant.

There will be less claims on the insurance companies, PI premiums should ultimately go down, and there will be less claims on the FSCS and therefore a smaller levy. If this is combined with the greater professionalism that RDR and the higher qualifications bring and better pro-active regulation then everyone is a winner.

If we are seking to make Baners personally responsible for their actions then the same principle should apply to advisers and providers.

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Barman

Feb 06, 2013 at 16:32

Ive never had a car accident yet I still pay insurance every year to cover those that do, every year this goes up and up and I still have to pay. The FSCS is a useful sales tool for many advisers, it gives our clients some reassurance that they have an element of protection. Theres lots of uninsured drivers out there, increasing my insurance each year, whilst frustrating, thats life im afraid.

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Scrapheap

Feb 06, 2013 at 16:35

A question on 2012/13 levies now I've seen the FSCS report.

This shows investment intermediaries paying £78m annual levy already but an anticipated interim levy of £25m to be confirmed - thats £103m. I thought the cap was £100m - yet it then says the FSCS does "not expect to trigger a cross subsidy on fund managers in 2012/13".

How does that work then - is the £25m actually expected to be £22m and magically enough to take the full amount allowed from investment intermediaries and yet then portray it as 'good news' it's not £25m. Is this just spin?

I may have got this wrong so please correct me if so, I may be too cynical....

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Jonathan Kirby

Feb 06, 2013 at 16:52

@ Barman

Your analogy is flawed.

We pay PI insurance to cover our risks- with a very hefty excess which is the equivalent of motor insurance.

As drivers we don't have to also chip in to a pot for everyone else's mistakes which is what the FSCS is in addition.

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Julian Stevens

Feb 06, 2013 at 16:52

I'm not sure an analogy with the costs of car insurance is appropriate ~ what about NCD for safe drivers with clean track records? The absence of any such discounts for IFA's is a bit like all domestic motorists being stung for a premium supplement in the wake of a container ship carying 500 cars from Japan going down in a storm because the owners failed to observce all the relevant regulations to minimise the risk of such a disaster. What the hell is that to do with me?

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Mark Smithers

Feb 06, 2013 at 16:55

One winner Herbert smith

And do not forget the senior fscs and FSA employees that will move over to the private sector on large incomes.

Feathering their own nest at the expense of ifa's and ultimately the clients.

The truth will never come out as it is too damaging against the FSA.

I wish I could run my business that way

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Barman

Feb 06, 2013 at 17:03

@ Julian, ah but maybe it is, the FSA has recently discussed offering FSCS discounts to IFA's with no complaints...

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Anitaki

Feb 06, 2013 at 17:08

Has anyone else noticed that there are fewer names contributing to these boards these days? > > So many of them have had enough of these and are refusing to sign any more blank cheques to these self-important quangomeisters

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Smithling

Feb 06, 2013 at 17:23

@ complacency rules

I didn't explain myself very well. What I should have said is that due to the regulation and the complete incompetence of it in the financial sector, it makes insurance basically impossible.

If the regulator itself says something is okay and then turns around later and says no it's not and the advisers were at fault then no insurer in it's right mind would insure us for an unlimited amount and without room to wiggle.

As far as I can tell the PI cover is simply a requirement to practice, whether it's worth the paper it's written on appears to be irrelevant.

I completely agree with your principle on all points so don't confuse me with somebody that thinks any of the above is acceptable.

For example, the fact that any PI policy has a maximum cover on it. Well that's ridiculous. In theory, to be properly covered you should have a policy with a maximum cover well in excess of the cumulative total of all business you've ever done in your entire career, since it's written on a claims made and not claims arisen basis.

In other words, if an adviser invests say £1m a year for 30 years along with various insurance and mortgage products then they will need a policy that covers them for no less than around £40m of cover per year. Simple as that.

So if they can afford a £40m policy per adviser then all is rosey in the world. If not then I suppose the next best thing is to get a policy which is sufficient and cheap enough to be deemed acceptable by the regulator. The problem there of course being that when it actually comes to claim on the policy... oops, the cover isn't what we need it would be.

So we go and seize the adviser's house and pension... what's that going to be worth? A couple of million? Where do we get the other £38m that we're still missing? Plus we've now got an ex adviser in prison costing £50k per year to support as well as an entire family relying on welfare while not paying tax. Not to mention the general collapse of the industry when it turns out that it's totally on the advisers shoulders.

Personal accountability is all well and good... but it won't bring investors' money back.

The problem with the industry (in my opinion) is the PI being on a claims made basis and not a claims arising basis. What on earth is the point of PI cover if as soon as you move firms, phoenix, retire etc it is completely pointless. You can get all the run off cover you want, it's all irrelevant if the advice itself is not covered. Unless I'm mistaken, it is virtually unheard of for any IFA to have a 'claims arising' policy. Please let me know if you know where it can be bought for a remotely affordable price because I would suggest the answer to the question is the exact reason that personal culpability and PI cover appear to be worth virtually nothing and that is why the FSCS end up taking the hit.

It's not fair and it's not right, I agree.

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Julian Stevens

Feb 06, 2013 at 17:34

NCD's on the FSCS levies would be welcome but because the regulators regard networks as a single entity rather than comprised of many small (and increasingly over-regulated) firms, we wouldn''t qualify.

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Keith Jayne

Feb 06, 2013 at 17:44

Has anybody ever considered what a jury would think?.

Although the term 'daylight robbery' is an oft-used phrase, it is surely never more appropriate than this as a description of how we are being 'mugged'.

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David Hatton

Feb 07, 2013 at 09:01

@Barman.

I agree but how do you feel insuring and paying for your neighbours car when they are clearly capable of paying it them selves.

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Ian Lees

Feb 07, 2013 at 09:54

The term " daylight robbery " is appropriate when LloydsTSB are stopping clients DDMs to insurers requesting cusotmers to attend their branches " to meet their restricted managers ", for the sales of theri high charged products. We have also heard of a case where Barclays called in a customer when he made a standing order to a financial planner - for independent advice - on the basis that barlays the rate rigging bank could offer the same or better advice.

Clearly there is no protection agains tthe insolvent banks - and their wheeling and dealing for ther own benenfits. LloydsTSB owned Scottish Widows telephoned their own manager - when a client surrendered the scottish widows policy - to alert him and offer him the opportunity of a sale. The manager called in the LloydsTSB customer - before the money hit his bank account . These are the ferreting and active strategies of banks and their rogue trading abusing their position of " trust " and deceiving cusotmers for personal financial gain.

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complacency rules

Feb 07, 2013 at 10:16

The point that I was seeking to make is that if advisers, providers, banks act beyond their competence and therefore give bad advice or produce bad products then they are acting rashly and should be accountable to the extent of their business and personal assets. This will have a better knock on effect on quality within financial services than RDR.

If, at an early stage, the CEO of Barclays had been dealt with in this way for the various problems there, then the problems would have been stopped very quickly, not just at Barclays but at all the banks.

In my view the FSCS should be there to compensate the clients, not to bail out all those involved in the advice process. The emphasis seems to be the other way round. The FSCS seems to find it easier to increase the levy on all advisers rtaher than for the regulators to pursue those responsible, and their insurers, to the full extent and for the FSCS to only pay the excess.

This would certainly focus the minds of everyone in the finance industry to act ethically.

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Paul Barnard

Feb 07, 2013 at 10:46

Ian, I agree, but your complaint about the banks' sharp practices could have been made 25 years ago, 15 years ago, 10 years ago - it never seems to change - people still use them. Yet when Starbucks arrange their tax affairs quite legally, people boycott them, amny of whose branches were/are franchises anyway so they only hurt the little guy anyway.

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