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Kim North: FCA’s reasons for dropping FSCS product levy are weak

Kim North

Year after year I despair at the cost for advisers of the Financial Ombudsman Scheme and the Financial Services Compensation Scheme when I read their annual results.

More than half of the total number of complaints dealt with by the FOS last year involved four banking groups, while 4,076 financial businesses accounted for just three per cent. Close to one percent of FOS complaints are against IFAs. Complaints over unregulated collective schemes (understandably), annuity rates being low and inflexible, and an uneven playing field for commission paid on certain products are still widespread.

We have asked for a long stop on complaints to the FOS but the Treasury and the FCA have again ruled this out. This issue will roll on. After all, in 2014/2015 the FOS received about 750 complaints concerning financial advice more than 15 years after the incident was recorded.

Last year the number of complaints received against financial advisers concerning term assurance, the most basic of all financial products, were in double digits. “I didn’t claim as I’m still alive, so it was a waste of money” – please somebody apply sense to these old complaints pushed on by the claims chasers and put a long stop on certain term based products. A complaint received near the end of the term should be dismissed immediately.

I would struggle to recompile a file for a client given financial advice by myself over 20 years ago and my data storage up in the cloud uses the latest technology. Admittedly, advice provided on areas referred to as sensitive sales, such as pension transfers, will be need to be kept until the day I die. But, come on, term assurance files kept for eternity?

Meanwhile, I was pleased to see the FCA hold its first roundtable meeting about the FSCS funding model after the Financial Advice Market Review suggested a review was due. The review needs to consider the fairness of the current scheme funding, the scale of impact on firms and the impact on the scheme from sectors that do not currently contribute enough or at all.

Despite calls from Apfa and MPs for the FCA and the Government to reconsider a product levy as a way to bring down FSCS costs to advisers, it was deemed outside the scope of the review by the regulator, as it would require a change in legislation. Who else needs to demand a product levy be applied for the FSCS funding before it happens? Jose Mourinho? And when has a required change in legislation stopped the plethora of regulators say “no” to a good idea?

Advisers, particularly independent financial advisers, continue to represent the lowest risk of consumer detriment, yet still have to pay a disproportionately large share of the costs of regulation. This is not treating advisers fairly.

Kim North is managing director at Technology and Technical


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 20th June 2016 at 1:14 pm

    A product levy won’t bring down the costs of the FSCS for advisers. The only thing that will is for the FSCS to stop taking on losses incurred by people who chose to invest in an unregulated product (that’s failed) via an unregulated intermediary (who pays not a penny into the FSCS) just because one single regulated intermediary may have flogged one. THAT is why the FSCS’s levies have skyrocketed, not an epidemic of bad (investment) advice on the part of the regulated adviser community.

    If I’m wrong, somebody please explain the flaw in my reasoning.

  2. Been stating for years, NO unregulated investment should receive ANY payment out from the FSCS. It is there for regulated business. This is very simple, not a regulated investment, no protection. I am sick of paying for advisers that offer these high risk often out right dodgy investments. As a regulated adviser why would you offer such investments? Greed, greedy advisers and Greedy clients. If it looks to good to be true? It IS.

    Regulated the products that are needed and not currently regulated and then shut the door. Even this will be to late as the horse has in most cases already bolted.

  3. Julian Stevens 22nd June 2016 at 4:12 pm

    Okay Phil, that’s 2:0 agree:disagree (the other agree is David Severn). I just CANNOT understand why those lobbying for product levies think there’s any point whatsoever in barking up that particular tree. We could ask APFA, but would probably be ignored. They don’t like anyone questioning the rationale of anything they’ve decided to pursue, even if to everyone else the cause is patently hopeless.

    Even if the FCA and the FSCS (both strongly opposed to the very notion) allow them, their effect will be like draining a swimming pool with a teacup. The failures of unregulated products invested in via unregulated advisers will continue, as will the FSCS’s practice of taking on all those losses just because one regulated adviser may have flogged one. Unless that is addressed, what possible hope can there be of any reduction to our FSCS levies? The people at the FCA have almost certainly worked this out, yet have no intention of taking any action whatsoever. What a shame the TSC doesn’t have the power to administer a powerful kick up their backsides and direct them to do so.

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