The Association of Professional Financial Advisers (Apfa) has called for the Financial Services Compensation Scheme (FSCS) to show evidence of how cost effective its legal action against Keydata-selling IFAs is.
The trade body responded to the FSCS's half year review in which the scheme predicted an increase of its budget from £3.9 million to a new revised figure of £7.7 million to pursue recoveries for 2012/2013.
Chris Hannant (pictured), policy director of Apfa said the budget had almost doubled which was in addition to the £7.9 million the scheme had spent last year on recoveries which will mostly be spend on legal fees.
'These are significant numbers for the profession, but the worst of it is that we have no idea of how cost effective legal action has been. The FSCS’s half year review gives no detail at all as to what money has been recovered from legal actions so far. The Financial Services Authority must look closely at this issue. The FSCS needs to demonstrate that these recoveries are warranted and cost effective.
'Furthermore, there should now be a process for bringing an end to actions against advisers with a handful of cases. It cannot be cost effective to use City lawyers to pursue claims worth small amounts.'
The FSCS also recently revealed that investment advisers face being hit with a further £28 million levy due to the collapse of Pritchard Stockbrokers and Worldspreads.
Last week, the scheme called in a £25 million interim levy for the investment intermediation sub class and an additional cost of £3 million as a result of a redistribution levy because of £36 million shortfall in FSCS funds.