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Navigating the Investment Business Compensation Scheme

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Luke Wilkins - Associate

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It is well established that the primary avenue of claim if you suffer financial loss because of poor advice received from a professional is one of professional negligence

It is possible to bring a claim against someone you have paid to provide an expert service, such as a solicitor, barrister, surveyor, architect, accountant, financial advisor or tax advisor.

What is less well known is that there are other actions that you can bring against a professional in circumstances where the prospects of recovery in a claim of professional negligence are limited.

As our Financial Services experts will go on to explain, one such action is in respect of accountants, and is called the Investment Business Compensation Scheme (the Compensation Scheme). 

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Investment Business Compensation Scheme v2

Scope

In order to pursue a claim under the Scheme, the accountancy firm providing the advice must have been authorised or licensed by either the ICAEW, ICAS or ICAI at the time the investment business advice was provided.

The key element to be satisfied is that the loss must have arisen from the advice given.

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the scope of the investment business compensation scheme

Fund of Last Resort

The ICAEW defines the Scheme as "a fund of last resort". This means that example circumstances in which a victim of poor investment advice might look to rely on the Compensation Scheme are:

  • If a negligence claim has previously been pursued, but it is discovered that the Defendant has become insolvent and therefore has no professional indemnity insurance in place at the time the claim is notified or 
  • There is no other way of recovering compensation.

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fund of last resort

Procedure

The Scheme is administered by The Chartered Accountants Compensation Scheme Limited (the Company), who are responsible for paying compensation to successful Claimants in accordance with the Compensation Scheme. 

A compensation committee (the Committee) will be appointed to determine claims, which will comprise at least 12 members of the Board of Directors of the Company.

None of the Committee will be Principals in Licensed Firms of former authorised firms, and at least a quarter of them must not be accountants.

When a claim is received, the Chairman of the Committee appoints a Panel of at least 3 Committee members, one of whom will not be an accountant, to determine the claim. 

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prcoedure

Components of a Successful Claim

A claim is only successful if the Committee is satisfied that the following requirements have been met: 

  • The Claimant has incurred a Civil Liability. This means that you will not be able to recover any losses that you would not ordinarily be able to recover in a civil action. For example, if investment advice has been provided to maximise tax efficiency and you are later required to pay a large tax bill, you may not rely on the Compensation Scheme. 
  • The accountancy firm that provided the advice must be insolvent. 
  • The Civil Liability must have been accepted by the liquidator (or trustee/assignee in bankruptcy) of the insolvent accountancy firm. The Committee does have the discretion to determine whether a Civil Liability has occurred without this. 
  • The Committee is satisfied with the amount of the Civil Liability.
  • That the Civil Liability has not been satisfied, in whole or in part. 
  • The accountancy firm is likely to be unable to satisfy that Civil Liability. 
  • The claim has been made in accordance with the Compensation Scheme Regulations.

 

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Components of a successful claim

Grounds for Rejection of a Claim

A claim may be rejected by the Committee if:

  • Notification of the claim was submitted more than six months after the Claimant became aware, or reasonably ought to have, of the firm's insolvency (unless the Committee exercises its discretion that the claim ought to be allowed despite this).
  • Civil Liability arose when the accountancy firm was not authorised by the relevant bodies or licensed to give out the advice, which gave rise to the liability.
  • The Claimant is responsible for or has profited directly or indirectly from the circumstances making the firm insolvent. 
  • If the Civil Liability relates to assets managed by the firm for an occupational pension scheme. 
  • The Claimant is a professional investor, and the loss caused was for his own account. 
  • It is related to the failure of investment performance to match a guarantee or representation made by the firm or a third party. 

 

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grounds for rejection of a claim

How Much Can I Recover?

The amount you can recover under the Compensation Scheme is capped at £50,000, exclusive of any interest payable.

There are specific rules relating to interest under the Compensation Scheme.

It is important to note that a claimant is not usually entitled to recover any costs related to making a claim under the Compensation Scheme. 

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how much can i recover

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Making a claim under the Scheme can be complicated and stressful. Our Commercial Litigation Team and Financial Services Team are here to help and have experience dealing with claims under the ICAEW scheme.

01619414000

Luke Wilkins's profile picture

Luke Wilkins

Associate

Luke has over 2 years of experience acting as a Corporate solicitor. Luke has specialist expertise in mergers, acquisitions, and disposals, as well as providing corporate support to our insolvency and restructuring team.

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