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FSCS recovers £300m from failed firms over five years

The Financial Services Compensation Scheme (FSCS) has recovered nearly £300 million over the past five years from failed financial services firms, reducing costs for levy payers.

FSCS recovers £300m from failed firms over five years

The Financial Services Compensation Scheme (FSCS) has recovered nearly £300 million over the past five years from failed financial services firms.

This includes £50 million recovered from litigation against a large number of advice firms involved in the mis-selling of Lifemark investments, including Keydata.

The lifeboat fund launches recovery action to recoup amounts paid in compensation from any party that it considers to have a legal responsibility. As part of the process of paying compensation, the legal rights of consumers are transferred to the FSCS. 

FSCS chief executive Mark Neale said: 'Recoveries are an unsung part of FSCS’s vital work of compensating customers and contributing to confidence in financial services.

'I am very proud of the professionalism of our Recoveries Team in navigating complex cases to successful outcomes. Recoveries will play an essential role in our new strategy for the 2020s.'

A recovery action is a legal claim pursued by the FSCS in order to recover the compensation it has paid to customers of failed firms, whether through a formal insolvency process, litigation or other form of dispute resolution. 

The FSCS must first determine whether the recovery is worth pursuing and whether the defendant will be able to pay the money, rather than pursuing recoveries as another means of punishment. 

In taking recoveries action, the lifeboat fund regularly deals with the Financial Conduct Authority (FCA), Serious Fraud Office (SFO) and Insolvency Service, along with a range of insolvency practitioners. 

FSCS general counsel James Darbyshire, who leads the recoveries work, said: 'The usual avenues of recovery we pursue include actions against the firms we’ve declared in default, and their professional indemnity insurers.

'Increasingly, however, we are taking ever more complex recoveries action, and in those instances we tend to make use of our panel of law firms, who have both the expertise and jurisdictional reach to assist us.'

Consolidation conundrum

In Jaurary New Model Adviser® revealed how the current trend for buying advice businesses is exacerbating claims on the FSCS. 

Just three advice giants – AFH, St James's Place and Fairstone – can between them be linked to 35 collapsed firms with FSCS liabilities worth a total of £46 million.

When New Model Adviser® asked the FSCS why it was unable to pursue liabilities in these cases, the organisation’s chief corporate affairs officer Alex Kuczynski said it is powerless in its position.

‘We can only claim where there is a legal liability from whoever it is to the original investor,’ he said. ‘So the original investor would not have been able to make a claim against a successor, a subsequent owner or a new principal, and neither are we.'

Read the full report: How consolidation is fuelling FSCS bills worth millions

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