23rd September 2021

FSCS, how long does it take to get to the facts?

More than 5 months.

Back in May this year I tried to get some sense of the scale of discretionary payments made by the FSCS to consumers who have long since passed their ‘complain by’ date. 

The task has not been easy. The FSCS is not bound by ‘Freedom of Information’ law. The FCA are, but, made it clear that it would be best try and get to the FSCS information by way of a whistle blowing complaint to the FCA.

So, as suggested, I wrote:

I would like to draw your attention to discretionary payments that the FSCS makes regarding the following situations.

1. Endowment taken out March 1998 for 25 years
Policyholder received three ‘red’ letters from provider in 2003, 2004 and 2006
Client didn’t make a complaint at that time.
Advisory firm went into liquidation in 2015
Policyholder now makes a claim via FSCS

2. Endowment taken out March 1998 for 25 years
Policyholder received three ‘yellow' letters from provider in 2003, 2004 and 2006
Client didn’t make a complaint at that time.
Advisory firm went into liquidation in 2015
Policyholder now makes a claim via FSCS

3. Endowment taken out March 1998 for 25 years
Policyholder received three ‘green’ letters from provider in 2003, 2004 and 2006
Client didn’t make a complaint at those timelines.
Advisory firm went into liquidation in 2015
Policyholder now makes a claim via FSCS

- Would the FSCS pay compensation and if so, how much?
- How much has the FSCS paid from 2015 to date in discretionary endowment compensation? 

The FSCS has not responded to requests for information regarding the 3 profiles above. I believe such payments should not be made so long after the regulatory governing constraints, i.e., 6 years after the date of the advice or a further 3 years if it was reasonable assume the client was unaware they should have concerns.

The FCA advise me that they do not hold such information on the use of compensation discretion and if this is correct, they certainly should have it.

Can you explain why the FCA does not have this information and what steps will be taken to ensure they do have it and by when and investigate the grounds for such payments being made by the FSCS?

The FSCS should abide by the rules set and nothing more. 

I received a reply on the 27^th May from the FCA’s FSCS Liaison team: 

Thank you for your email received 12/5/21 with regards to FSCS discretionary payments.

This has been passed to my team to respond as it falls out of the Whistleblowing team's remit. I have raised your query with the FSCS team. Please allow at least 5 working days for this to be looked into. I hope this helps. Please let me know if you have any other queries. 

And a follow up on the 2^nd June again from the FCA’s FSCS Liaison team:

By way of an update, I wanted to advise that my colleague in the FSCS team is liaising with the FSCS directly, and I will let you know as soon as I have further guidance. Thanks for your patience.

Some weeks later, 10^th August the FCA’s FSCS Liaison team's response is that:

It is for FSCS to make decisions on claims, and any queries about decisions reached should be referred to FSCS.

- Under COMP 8.2.4R, FSCS has discretion to disregard a defence of limitation for certain claims, including protected investment business claims, if FSCS considers it reasonable to do so.

Also, the FSCS is happy for you to contact them directly about this. You can do so using the following link:

I did as suggested, asking Ms Rainbird and cc;d to Mr Rathi on the 10^th August stating the below:

It would appear, that the FSCS is making discretionary compensation payments that I find it hard to believe possible based upon the regulatory framework of firms, the complaints process and FCA complaint rules. 

A request for clarification was made but in effect refused by the FSCS thus why I approached the FCA. 

The latest response from the FCA quotes the FSCS rules as follows: “Under COMP 8.2.4R, FSCS has discretion to disregard a defence of limitation for certain claims, including protected investment business claims, if FSCS considers it reasonable to do so.” 

I would be grateful if you could explain how endowment claims such as referred to can be subject to discretionary payments when the complaint rules are so clear, and in particular, what qualifies as ‘reasonable’? 

I would further appreciate clarification as to whether discretion is applied when the case is ‘managed' by a CMC (Claims Management Company) and not the consumer direct? 

I believe that industry levies are being used inappropriately to settle such claims and would be happy to be proved wrong.

I have ccd Mr Rathi into this mail trail as I think this has the potential to make a complete mess of the PI market for smaller advisory firms and expose businesses to undue levels of unforeseen risk resulting in them going out of business. 

On the 9^th September a reply came from the FSCS: 

Thank you for email addressed to our CEO, Caroline Rainbird, dated 10 August 2021. Caroline has asked me to look into your concerns. 

I note the contents of your recent discussions with the Financial Conduct Authority (‘FCA’), regarding discretionary payments on example endowment claims. Within these discussions, the FCA confirmed that under the regulatory framework that covers our service, namely COMP 8.2.4R in this instance, FSCS has discretion to disregard a defence of limitation if considered reasonable to do so given the specific circumstances of the customer and the evidence we gather in relation to their individual claim. This was echoed, and previously discussed at length, during your email conversation with our Legal Team in June 2020. 

Our Legal Team also confirmed that FSCS consider claims on their individual merits, and our discretion to apply COMP 8.2.4R is therefore considered accordingly. To confirm, whether a claims management company was involved in the claim would not be a factor when considering the merits of an individual claim.

With regards to the examples you highlighted to the FCA, and previously to our Legal team, these provide a generic overview of three situations. However, without further detail about the customer and their circumstances at the time they dealt with the firm, we are unable to determine whether FSCS would consider using its discretion and apply COMP8.2.4R in these instances. 

I trust this email, and the previous discussions on the matter, clarify our position regarding the application of COMP8.2.4R. If you have any further queries regarding this email, please contact me on the details below. 

The FSCS are well aware of the case in question and the insurer they found against. 

My email response on 9^th September was as follows:

Many thanks for getting back. 

I understand the reticence to create clarity, it may be that hypotheticals are not easy. 

Could you confirm what actually constitutes a time-based discretion payment for an endowment claim please?

That would provide great clarity.

As of 25th September I am still awaiting a response.

Why is it that when regulators and associated trades such as the FSCS are asked simple questions that are of great interest to those who fund their activities, one finds oneself tumbling down rabbit holes.

What does the FSCS or the FCA have to hide? I am amazed that ‘data protection’ has not been used as a defence.

I am sure as with all financial scandals it will be the cover up that causes the problem.

Watch this space!

Regulation, Panacea Comment