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Wealth administration commerce physique PIMFA has welcomed information that the FCA will ban regulated companies ‘phoenixing’ into Claims Administration Firms from 7 July.
Phoenixing happens when monetary companies, typically advisory companies, fail after which re-emerge as Claims Administration Firms and encourage earlier purchasers to assert compensation from authorities our bodies such because the FSCS.
PIMFA describes phoenixing as a “notably disagreeable apply” that sees claims administration corporations (CMC) created from the ashes of failed monetary companies companies.
Simon Harrington, head of public affairs at PIMFA, mentioned: “We’re happy the FCA has listened to PIMFA’s suggestions and intervened on this market and take into account it to be lengthy overdue.
“As we set out in our paper on FSCS reform, the existence of the FSCS can act as a market distortion, particularly in cases of companies looking for to phoenix as CMCs as soon as they’ve defaulted onto the FSCS. Immediately’s coverage assertion represents a much-needed closure of this loophole and the FCA ought to be congratulated on taking motion.”
PIMFA has lengthy argued that the apply ought to be stamped out.
The FCA introduced final 12 months that it could transfer to cease companies from phoenixing into CMCs.
In a single case cited by the FCA, the managing director of a monetary recommendation agency supplied “insufficient service” to shoppers however after he was barred from appearing as an organization director, his spouse arrange a CMC.
The CMC then represented prospects claiming greater than £5m from the FSCS in claims in opposition to the husband’s former monetary recommendation agency. The FCA refused the authorisation of the CMC because the agency didn’t meet requirements.
The FCA mentioned that whereas the FCA was capable of cease claims administration phoenixing by refusing authorisation the brand new guidelines will put a cease to claims administration phoenixing throughout the market.
Sheldon Mills, govt director of shoppers and competitors on the FCA, mentioned final 12 months: “Shoppers ought to have the ability to select to use a CMC to assist them declare compensation from the FSCS. However paying somebody to supply assist who is related with the agency that triggered the shopper’s loss is unsuitable, notably the place the agency had a accountability earlier than winding as much as assist its prospects to acquire compensation.”
The FCA turned liable for the regulation of claims administration corporations in April 2019, following a Authorities assessment. Since then, the FCA has handled 979 functions for authorisation, with round 20% of CMCs leaving the sector. Some 656 companies have been accredited, whereas 24 have been refused or rejected.
As well as, 168 functions have been withdrawn with round 75% of those withdrawals occurring following FCA scrutiny.
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