View from City Road: Compensation rules in a mess

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Lawyers may like the fact that rules of the Investors Compensation Scheme need repeated clarification in court, but savers do not. For them the uncertainty means extra worry and strain.

The elderly people who bought unsound home income plans have been subjected to a double trauma. Not only have they lost thousands of pounds through the drop in the value of the bonds they bought, but also they were turned away by the Investors Compensation Scheme on the basis that their claims fell outside the scheme's rules.

While the judgments delivered yesterday on two such groups in the High Court will help to ease their burden, they do little to correct weaknesses in the rulebook. The ICS, which pays out a maximum of pounds 48,000 for negligent advice given by firms that have collapsed, is the main compensation scheme set up under the Financial Services Act.

This is the third time the ICS's rules have been subjected to interpretation by the courts. Admittedly, they could not have been expected to foresee some of the extremely complicated investment scams that have given rise to claims in recent years. But the wrangling over who is not eligible to claim compensation is an unedifying spectacle.

While the ICS is right to try to keep costs down, yet more court cases to decide how much and to whom it should pay money, cannot be a sensible way to run a compensation scheme.

The Securities and Investments Board, which oversees the scheme, should review the rules with the aim of making them clearer. If it does not act, the job coud be left to the Personal Investment Authority now on the horizon.