Govt could end FSCS cross-subsidy
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The Treasury has proposed that under the new regulatory structure cross-subsidy between different classes of Financial Services Compensation Scheme levy payers may come to end.
The Government has launched a consultation on the implementation of regulatory reform following Chancellor George Osborne’s announcement that the FSA was to be scrapped in his Mansion House speech last month.
Today’s paper clarifies that the FSCS will fall under the remit of the new Consumer Protection and Markets Authority but the Treasury acknowledges that in event of a bank or insurer the FSCS’ work would also overlap with the new Prudential Regulation Authority as well.
As a result the Treasury says that one way of recognising these different roles of the FSCS would be for both the CPMA and the PRA to make rules around compensation and levies for the different classes of firm they regulate.
The paper says: “This would imply the existence of separate compensation schemes, which could imply ending the current cross-subsidy between different classes of levy payers (under which investment firms or insurers have to contribute to the failure of banks, and vice versa).”
The Treasury says that under this model it may still be appropriate for a single body, such as the FSCS, to continue to administer all compensation schemes.
An alternative to this arrangement would see the FSCS remain as a single scheme under the CPMA, which would make all the rules on levies, though the Government says the FSCS would still need to work closely with the PRA.
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Readers' comments (6)
Andy F | 26 Jul 2010 11:23 am
OK in principle so long as they classify companies in the right scheme and don't allow product manufacturers to qualify as advisers!
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paolo standerwick | 26 Jul 2010 11:27 am
About time too.
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Philip Lyons | 26 Jul 2010 12:27 pm
Fimbra - PIA - FSA and they all failed, why?
What can the Treasury and the industry learn from this sorry history of financial regulation?
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bill wells | 26 Jul 2010 12:34 pm
The KeyData and Lehman debacles have shown that the current system is 'not fit for purpose'. Rest assured that any new scheme will be more costly and even less capable of protecting consumers properly.
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Julian Stevens | 26 Jul 2010 4:56 pm
Any chance of this extending to the completely disproportionate levies that the FSA extorts from the IFA sector to maintain its monumentally costly, inefficient and wasteful existence?
Scrapping bonuses and the RDR would be two very good places to start cutting the cost of regulation for everyone. Just as a start, mind. If I had my way, I'd take a hatchets and sledgehammers approach to cutting regulatory costs and UK plc would be a better place as a result.
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Julian Stevens | 28 Jul 2010 8:47 am
On the one hand, the Treasury is proposing to remove the cross-subsidy between different classes of Financial Services Compensation Scheme levy. Yet, on the other hand, Mark Hoban has claimed that "the RDR is a matter for the FSA", as if that's something in which the government has no power to intervene. From this, we may infer that the government's agenda for regulatory reform is decidedly selective ~ as indeed is its agenda for reform of the rules governing pensions. On the one hand, it has announced the removal of compulsion to buy a lifetime annuity but all the alternatives remain shackled to GAD Rates. So really, as far as I can see, that doesn't seem to be much of an improvement at all. Or am I missing something here?
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