Over the past five years, the UK’s Financial Services Compensation Scheme (FSCS) has recovered just under £300m from failed financial services firms.
These sums have reduced FSCS levies on the industries.
The FSCS has also recovered billions of pounds from the resolutions of the 2008 banking failures, which saw the FSCS need to take out loans of around £20bn from the government. These loans have been paid back in full, largely due to its recoveries work.
To lower the costs of compensation for levy payers, FSCS looks to recover amounts paid in compensation from any party it declares has a legal responsibility. During the process of paying compensation, the legal rights of a customer is transferred to the FCSC, who then pursues on their behalf.
A recovery action is a legal claim to recover compensation it has paid, either through formal insolvency, litigation or other dispute resolutions. Before undertaking this, the FSCS must identify whether the recovery is worth pursuing and whether the defendant is capable of paying.
The FSCS works closely with the FCA, Serious Fraud Office (SFO) and the Insolvency Service.
FSCS’s general counsel James Darbyshire 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.”
A case study supplied by the FSCS showed its recovery action against Harlequin, a collection of companies offering marketing, sales and development or overseas investment properties. The incident occurred after customers purchased off-plan property development investments and hotel rooms in the Caribbean, through UK-based IFAs and SIPP providers.
Around 6,000 investors deployed a combined total of £400m into these projects. However, due to a range of reasons, the developments failed, and funds were not used to develop these resorts.
David Ames, a co-owner of the family company, is part of an ongoing prosecution by the SFO, and along with his wife, been made bankrupt. As a result, Harlequin is in a formal insolvency process.
The FSCS has compensated over 2,700 investors, and is pursuing recoveries against various Harlequin entities.
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