ABI and bankers against pre-funded comp scheme

10 February 2011 8:00 am | By Natalie Holt

The British Bankers’ Association and the Association of British Insurers have argued against advisers’ calls for the Financial Services Compensation Scheme to be funded via a product levy.

BBA director of retail banking Peter Tyler says the benefits of pre-funded compensation, such as a product levy, would not necessarily outweigh the costs of setting up such a scheme.

Tyler says: “In considering the case for a pre-funded compensation scheme, the cost of administering and managing it needs to be carefully considered in terms of the benefits that flow through to consumers. It is not clear what added consumer benefit a pre-funded investor compensation scheme would bring, given the cost of running it.”

The ABI says a product levy would not work better in practice than the current funding model. A spokesman says: “We think there would be issues in a product levy. If a compensation scheme is being funded by a product levy, there would be concerns as to whether the funds available would be sufficient to meet compensation claims.”

A spokeswoman for the Investment Management Association says FSCS funding is in urgent need of reform but it has not yet drafted any detailed prop- osals on viable alternatives.

Evolve Financial Planning director Jason Witcombe says: “Advisers have to pay for the FSCS levy and ultimately that cost is paid for by the client. That does not feel fair for a client who goes to an adviser for a financial planning service but no product is sold, as that consumer is effectively subsidising the others.”

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