Feb 18 – Beyond the regulatory perimeter

Unregulated activities have gained interest over recent years as compensation scheme claims against intermediaries have risen dramatically, with most claims relating to advice given on an unregulated product. As the firms mis-selling these speculative property schemes and unregulated investments have been regulated, the burden falls onto the rest of the industry.

There is already an expectation that firms apply the same conduct standards to their unregulated business as their regulated activity. This will be reinforced with new code of conduct rules that will apply to all staff in respect of their activities, whether regulated or not, as part of the Senior Managers & Certification Regime. Furthermore, the regulator has proposed to extend its Principles for Business to unregulated markets. Aside from the need for clarification that this would only capture financial activity rather than related business lines (so that estate agency, surveying etc remains out of scope), I hope this is not the only measure taken in this area. It is unlikely to be able to capture the kind of fraudulent activity we have seen, as these firms have been short-lived and discreet in exiting the market. Instead it is early and sufficient enforcement action that needs to be taken, with better intelligence gathering, as well as greater scrutiny of individuals applying for re-authorisation.

The perception of what’s normal needs to be changed: claims should not be this high. They cannot continue at this level if the industry is to survive. It should not be a given that a firm’s entire client base will fall into the FSCS. Firms failing for financial reasons is a natural feature of the market. But to default without sufficient run-off PI cover and to also leave a raft of complaints points to a systemic problem within the firm, not only in its poor advice but also probable intent.

Aileen Lees
Senior Policy Adviser
February 2018