At the time, the FCA said it could be argued that these investors might be expected to have the means to absorb losses or take their own private action against a failed firm and therefore should not be entitled to compensation.
Furthermore, sophisticated investors with a particular level of financial services expertise would likely have a greater understanding of the risks they were undertaking when dealing with an authorised firm, the regulator said.
In its feedback statement today, the FCA said it explored whether changes should be made to the ‘eligible claimant’ rules which determines which category of person is able to claim compensation from the FSCS.
However, it received “limited support” for the idea of excluding ‘high-net-worth’ or ‘sophisticated’ customers.
One respondent suggested that such individuals would have greater awareness, knowledge and experience and would have other legal remedies available to them.
However, a greater number of respondents objected to the suggestion that such individuals should be excluded.
Respondents considered that ‘high-net-worth’ individuals may not necessarily have the resources to absorb losses or means to take their own civil action to recover losses, it explained.
“Excluding ‘sophisticated’ customers would introduce challenges in judging to what extent an individual’s sophistication in a particular field is pertinent to the claim for compensation,” it said.
“More generally, respondents considered that introducing such an exclusion targeted at certain groups would be unfair and unreasonably exclude certain individuals who may be experiencing vulnerable circumstances.”
The City watchdog said after considering the feedback it received, it does not propose to make any changes to the eligible claimant rules.
“In particular, we do not consider there is a strong case for excluding ‘high-net-worth’ or ‘sophisticated’ customers,” it said.
“This would penalise certain individuals while complicating messages about who is protected by the FSCS, with no discernible benefits, including to the markets.”
The FCA said it is not appropriate or practical to restrict protection to only individuals in vulnerable circumstances, particularly considering that vulnerability is transient.
sonia.rach@ft.com
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