In other words, the scheme offers investors a rational way of removing this uncertainty and delay in exchange for their acceptance that they will not recover all of their losses.
Whatever is thought about the Woodford scheme of arrangement, there appears to be an increasing trend for using redress schemes in instances where financial services companies are found to have caused mass detriment to customers or investors.
A scheme of arrangement, a general Companies Act mechanism rather than a specific FCA power, is often the most controversial form of scheme, because of its ability to bind the whole class of potential claimants and prevent them from bringing claims in other forums.
FCA’s own redress scheme powers
The FCA also has its own extensive set of redress scheme powers, which, although somewhat historically underused, it has been using with increasing frequency in recent years.
The regulator has the power to impose industry-wide consumer redress schemes on multiple companies that have failed to comply with its requirements and caused actionable loss or damage to customers. It first used this power in 2013 to provide compensation to consumers who invested in the Arch Cru funds.
The power then lay unused for almost a decade until, in 2022, the FCA revived it to provide compensation for those given unsuitable advice to transfer out of the British Steel Pension Scheme.
Hot off the heels of the BSPS scheme, the regulator now appears to be considering using the power again in the context of its current investigations into the sale of motor finance loans to consumers pursuant to discretionary commission arrangements. It is expected to set out its next steps in relation to this issue in the third quarter of this year, but has already expressly stated that an industry-wide consumer redress scheme “may be appropriate”.
The FCA also has powers to impose redress schemes on individual companies, either through its supervisory or enforcement mechanisms.
A recent example is its attempt to impose a $700mn scheme on BlueCrest Capital Management to compensate investors for alleged excessive investment management fees. The regulator took the bold position that it could do so simply because it considered this “desirable” to further its consumer protection objective and, significantly, without regard to whether there had been any actual breach of its rules.
Its broad interpretation of its powers here was duly rejected by the Upper Tribunal, but the fact that the FCA took this position and is also now appealing the tribunal’s decision shows its current willingness to test the limits of its powers in this area.
