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Lighthouse boss hits out at ‘abject nonsense’ of FSCS levies

Malcolm Streatfield says current FSCS levies are a “disproportionate tax” on good advice firms

Money Marketing Retirement Summit

Lighthouse chief executive Malcolm Streatfield has called for Financial Services Compensation Scheme levies to be based on profit rather than turnover and branded the current levy calculation method “abject nonsense”.

Speaking at the Money Marketing Retirement Summit in St Albans earlier this month, Streatfield hit out at the FSCS funding model, saying it represents a “disproportionate tax” on good advice firms.

He said: “The entire adviser channel is said to produce £900m in profit a year, and when a levy can be applied on £150m of that in any given year, it shows how the FSCS levy is extreme in its application.

“I remember one year expecting a regulatory bill for £1m, and that would have been quite an increase on the year before. But when the bill arrived it was £1.5m. The annual profit expectation for my business was £1.5m. Halfway through your trading year, you get a bill for £500,000 a year more than you were expecting.

“There are countless examples of good quality adviser businesses where their total profit is being wiped out by the FSCS levy, so it becomes nothing more than a disproportionate tax. I get the impression that the people in charge of making decisions on this are reluctant to make change, and are just playing at the edges.”

Streatfield suggested FSCS levies would be easier to manage and ultimately fairer if they were based on a proportion of profit.

He said: “We all have a vested interest in ensuring the great British public are protected from firm failure, and that things are put right quickly with compensation paid.

“But the pool should be widened, and levies shouldn’t be calculated on a turnover basis but on a profit basis. If you amalgamated the profits from all the firms regulated by the FCA and Prudential Regulation Authority, decided the levy and set a percentage, I bet the percentage would be less than 1 per cent a year of profits to fund the FSCS adequately.”

He added: “A sole trader adviser making a profit of £100,000 a year and asked to pay £1,000 into the fund would not object to that. Equally, if Europe’s biggest bank was asked to put tens of millions of pounds in, this would be small change to them.

“A simple levy on profits of those trading and regulated in the financial services industry would be far more equitable. What we have at the moment is an abject nonsense, and lifting 15 to 20 per cent of the whole of the advice sector’s profits in one levy is not sustainable.”

Law firm Reed Smith partner Tim Dolan agreed the way the FSCS is funded is not fit for purpose.

Dolan said: “The funding of the scheme is far too complicated and confused. The idea of grouping firms together under quite weird bandings where they pick up the tab for each other in the event of a firm failure doesn’t make sense to me.

“A lot of firms also have difficulty implementing the fee tariff data to establish what their FSCS levy requirement actually is. From a firm’s perspective the unpredictability of what the levy will be in any given year doesn’t work.”

He added: “I would like to look at a much wider pot to fund the FSCS. Financial services firms are all interdependent on each other, and it doesn’t make sense to me if one adviser collapses all the other advisers should necessarily have to step in.”

Pinsent Masons senior associate Michael Ruck said reviewing the way funding classes were compiled and having a wider funding base would help to lower firms’ individual FSCS bills.

He said: “I agree with Tim in that the way some of the pots are divided and firms are allocated to the funding classes doesn’t always make sense. It sometimes leads to certain pots being more likely to have failures within them and firms in those groups more likely to repeatedly having to pay out.

“If you spread the contributions beyond a set number of pots, the levies on the many would be reduced as a result.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 22nd June 2017 at 3:35 pm

    The problem with the funding of the FSCS is not so much how the total levy bill is divvied up as the sheer quantum of that total with which the advice profession is being clobbered. This is due to the boatloads of uninsured liabilities it’s having to take on and the negligent failure of the FCA ~ which it refuses to acknowledge, let alone accept responsibility for ~ to prevent this happening.

    We can debate ad infinitum who should pay more or less but, when all is said and done, we’re ALL now having to pay far more than what should be necessary. Reallocating up the overall burden in different proportions is just shuffling the deckchairs around whilst ignoring the gaping hole below the waterline.

  2. Neil Liversidge 22nd June 2017 at 5:15 pm

    The problem with Malcolm’s suggestion is that the profit of a parent network will always be relatively small compared with the cumulative profits of its member firms. Sure the network might be left with only £1.5m but if it has, say, 1000 member firms each making £100,000 profit, that’s £100m in total. If the FSCS levy was to be based on the network’s profit and not the cumulative profit of its member firms then we who are directly authorised would be massively subsidising the network members. I can see that this might be one way to recruit network members (!) but unsurprisingly it has no obvious attraction for me. Surely the thing to do if you run a network is to recharge the levy to your members, dividing up the cost either by turnover or, as Malcolm suggests, by profit, depending on what your members will accept. Malcolm’s proposal seems therefore to confuse the question of current-model network viability with the entirely separate question of FSCS funding. As for the idea that the rest of us should subsidise the networks however, forget it. Nice try though mate!

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