Andy’s Mum and the FSCS

Let’s start with Arch Cru. I went to one of their launch seminars. The promise (3% above base rate return after charges guaranteed on a monthly basis) was so fanciful, I spoke to their chief economist about the underlying investments. He confirmed the return would come from loans to private equity companies, which he called low risk.

What could possibly go wrong?! As a firm we didn’t recommend Arch Cru. But many did, and there were even some firms, no doubt attracted by the idea of 3% up front and 1% pa for doing nothing, who moved all of their client money across.

When the inevitable happened and Arch Cru went bust taking many firms down with them, I (and many of you) had to pay for it, via the FSCS.

Now, this is so clearly wrong, so obviously completely crackers, that I struggle to finds words to express the sheer injustice of the situation.

Once, when I was about 9, me and some mates had been playing cricket all afternoon. We only had one bat and ball. They belonged to Andy, two years older than me, and he’d batted most of the afternoon before we finally got him out. When it was my turn, and I borrowed his bat. The ball was bowled to me (by Andy), I hit it, and the bat broke. Andy demanded that because I was holding the bat when I broke, it was my fault, and therefore I should pay for it. He was bigger than me.

I felt then like I feel now as I read that the FSCS are going to demand many more thousands of pounds from me to pay for the failure of Catalyst (amongst others). Indignant, but utterly powerless. There is something very Big Brother like about a Government quango that can simply demand money as it sees fit. That’s Big Brother as in the Orwell vision of a dystopian future, not the reality TV show featuring people being paid to undertake ridiculous tasks while we all watch amazed at their brazenness. Although…

Meanwhile, the FSA employees who failed to see in Arch Cru what was so obvious to me and many others do not have to pay a penny.  Neither do the IFAs whose businesses went  bust. Many of them suffered financially from their misjudgement, but maybe there are also some who extracted cash from their business before it went bust handing the liability to the FSCS and therefore to me?

Because this is what I don’t get in all of this. Where did this money actually go? If the FSCS need to pay £150m, it means that those people lost £150m. Which means Catalyst and others took £150m from them, and lost it. Where?! Can’t the FCA find that out, and go and get some of it back? Surely there is someone else more liable for this money than firms who refused to have anything to do with it?

Can someone please come up with an idea as to what we can actually do about this crazy situation where the good firms subsidise the bad? Last year’s interim levy all but wiped out our staff bonus pool. How can that possibly be right?

Back in my childhood, Andy’s mum was consulted, and she decreed that it clearly wasn’t my fault that the bat broke, and that Andy was being a bit of a bully. She even told him off. Where is Andy’s mum now, when we need her so badly to sort out this injustice.

Chris has a novel out called A Bridge Of Straw – more info here

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10 thoughts on “Andy’s Mum and the FSCS

  • Nice article but I reckon the FSCS Levy is more like Gary, who chose not to play cricket because he was worried that the bat might break, being asked to contribute the broken bat fund at the end of the game!

    Reply
  • If we had been holding this particular cricket bat when it broke, I would see some justification for buying a new one. But in fact we,and the majority of others, refused to even pick it up. There is no fairness/justice in the current funding structure of the FSCS.

    I’m struggling to see what else we can do. Last April I gathered over 1,400 signatures in 24 hours on a petition for a fairer FSCS. Nothing changed. This despite Hector Sants writing to me with a very nice letter which seemed to demonstrate his understanding and concern about the status quo.

    We could all refuse to pay the FSCS interim levy when it arrives, but we know this would probably result in disciplinary action from the regulator.

    Other solutions, such as pre-funding FSCS levies or greater segmentation of sub-classes might help, but have their own challenges.

    What we really need to be able to do is identify and ‘take down’ firms which we can see from an early stage are going to cause a massive liability for the rest of us. With the current regulatory structure, particularly with the FCA seemingly reauthorising individuals from phoenixed firms with the minimum of fuss, I can’t see this happening either.

    Reply
  • I’m not sure the Big Brother works in this example – you have a choice to avoid this unfair treatment and that is to leave the industry and find employment elsewhere. This is slightly better than being born into a Society of which, any democratic process aside, treats you unfairly and you have no route to exit.

    Pooling works very nicely in the good times but can be seemingly harsh in the bad times. Insurance is a good example and especially Lloyd’s names.

    Individually rating each firm will not work and chasing after the failed companies is likely to be fruitless for obvious reasons. I agree with Martin that the reauthorisation of firms needs to be made much harder for failed firms with perhaps a “rated” increase in their own FSCS/FOS levies based on previous behaviours. Even that would be operationally challenging and probably illegal.

    Great quality at a Superviser level has been required for a while as that will hopefully prevent more of these failures. The difficulty there is that the FCA is a public sector entity and they struggle to attract/retain the best people who are offered private sector salaries elsewhere. The answer – increased fees (or maybe they will use all these fines they are throwing around).

    It is unfair but we all read the T&Cs when we decided to join the industry.

    Reply
    • When I set up in business in 1998 I wasn’t made aware that 15 years later I was going to be punished for the incompetence of others.

      I’m not sure suggesting I wind up my business after 15 years of hard work and find something else to do is a very attractive option! And if it was, it would mean many of the good guys leaving. We’ve enough of a problem post RDR with financial advice not being available to the masses as it is.

      Reply
  • I am under the impression that the major selling point of Arch Cru to advisers was some kind of enhanced trail continuing for ever as an exit route ?

    If this is the case then we are back to the vested interest of commission hungry salesmen which in itself justifies regulation.

    Whilst third parties are allowed to pay for distribution or have any part in the remuneration process this stuff will continue to happen.

    Easy to blame the sheriff and we appear reluctant to change the system ergo. Adviser Charging administered by providers.

    Reply
  • I am under the impression that the major selling point of Arch Cru to advisers was some kind of enhanced trail continuing for ever as an exit route ?

    If this is the case then we are back to the vested interest of commission hungry salesmen which in itself justifies regulation.

    Whilst third parties are allowed to pay for distribution or have any part in the remuneration process this stuff will continue to happen.

    Easy to blame the sheriff and we appear reluctant to change the system ergo. Adviser Charging administered by providers.

    Reply
  • If we had been holding this particular cricket bat when it broke, I would see some justification for buying a new one. But in fact we,and the majority of others, refused to even pick it up. There is no fairness/justice in the current funding structure of the FSCS.

    I’m struggling to see what else we can do. Last April I gathered over 1,400 signatures in 24 hours on a petition for a fairer FSCS. Nothing changed. This despite Hector Sants writing to me with a very nice letter which seemed to demonstrate his understanding and concern about the status quo.

    We could all refuse to pay the FSCS interim levy when it arrives, but we know this would probably result in disciplinary action from the regulator.

    Other solutions, such as pre-funding FSCS levies or greater segmentation of sub-classes might help, but have their own challenges.

    What we really need to be able to do is identify and ‘take down’ firms which we can see from an early stage are going to cause a massive liability for the rest of us. With the current regulatory structure, particularly with the FCA seemingly reauthorising individuals from phoenixed firms with the minimum of fuss, I can’t see this happening either.

    Reply
  • Nice article but I reckon the FSCS Levy is more like Gary, who chose not to play cricket because he was worried that the bat might break, being asked to contribute the broken bat fund at the end of the game!

    Reply
  • I’m not sure the Big Brother works in this example – you have a choice to avoid this unfair treatment and that is to leave the industry and find employment elsewhere. This is slightly better than being born into a Society of which, any democratic process aside, treats you unfairly and you have no route to exit.

    Pooling works very nicely in the good times but can be seemingly harsh in the bad times. Insurance is a good example and especially Lloyd’s names.

    Individually rating each firm will not work and chasing after the failed companies is likely to be fruitless for obvious reasons. I agree with Martin that the reauthorisation of firms needs to be made much harder for failed firms with perhaps a “rated” increase in their own FSCS/FOS levies based on previous behaviours. Even that would be operationally challenging and probably illegal.

    Great quality at a Superviser level has been required for a while as that will hopefully prevent more of these failures. The difficulty there is that the FCA is a public sector entity and they struggle to attract/retain the best people who are offered private sector salaries elsewhere. The answer – increased fees (or maybe they will use all these fines they are throwing around).

    It is unfair but we all read the T&Cs when we decided to join the industry.

    Reply
    • When I set up in business in 1998 I wasn’t made aware that 15 years later I was going to be punished for the incompetence of others.

      I’m not sure suggesting I wind up my business after 15 years of hard work and find something else to do is a very attractive option! And if it was, it would mean many of the good guys leaving. We’ve enough of a problem post RDR with financial advice not being available to the masses as it is.

      Reply

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