Adviser costs could rise in FSCS funding overhaul

The FSA has proposed increasing the annual limit on the level of Financial Services Compensation Scheme claims paid by investment intermediaries from £100m to £150m as part of an overhaul of the way the scheme is funded.

Life and pensions advisers will continue to meet claims up to a £100m threshold, while fund managers will see their claims threshold reduce from £270m to £200m.

Under the proposals, the FSCS will also project potential compensation costs over three years following the levy instead of a year as is currently the case, except for the deposit class. The FSA says this should smooth the impact of levies and may make levy requirements more predictable.

The regulator has today published its long-awaited consultation paper on reviewing the way the FSCS is funded.

It proposes separating out FSCS funding between activities that will come under the Prudential Regulation Authority, such as banks, building societies and insurers, and activities under the Financial Conduct Authority, such as advisers. There would be no cross-subsidy between the two.

The FSA is not suggesting any changes to the types of firms that fall into different classes or a redefinition of investment intermediation activities, despite lobbying from the IFA sector. Instead of having sub-classes within product areas, the FSA wants to create one retail pool which would be triggered if one or more FCA classes breaches their annual limit of claims (see explanation below).

FSA director of conduct policy Sheila Nicoll says: “Compensation funding inevitably means different sectors have competing interests. Our role has been to walk the middle ground and produce a workable solution we believe the entire industry can afford and live with.

“We would urge all stakeholders to engage with us in this funding review. Any changes we make have to produce a system that is as fair as possible, but ultimately plays its part in underpinning confidence in the financial services sector.”

A review of the way the FSCS is funded was started in October 2009 but was delayed a year later due to regulatory reform in the UK and ongoing development of the European investor compensation scheme directive. As European negotiations have stalled, the FSA has decided not to wait to publish its consultation.

The consultation will run until 25 October.

FSCS changes

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Daft headline. They could fall as well. One wonders how much listening the regulator has really done in the consultation, given that from your report, there is no proposal to recategorise firms, which is an obvious fatal flaw for the vast majority of IFA firms.

    It will be “interesting” to see how many bother to respond and how much industry pressure groups/trade bodies attempt to make the case.

  2. This is tantamount to rearranging deck chairs on the Titanic – unless the FSA’s agenda is to hasten the departure of IFAs through the systematic withdrawal of PI.

    One point to be argued is that firms should benefit from fines that are causually linked to financial losses that will be compensated by the FSCS.

    For example, yesterday’s news in respect of an insurance broker who spent clients’ premium monies. The FSA’s huge fine was calculated on the basis of the monies misappropriated. However, any payment received will now be paid the Treasury, while any financial losses incurred by the policyholders will be covered by the FSCS.

    Surely, if the FSA is fining on the back of losses, then monies recovered should be used to compensate losses, rather than firms having to pay for this via the FSCS?

  3. We will charge you more, but not to worry. you get longer to pay it. This could be the new no longstop!

  4. Got to love all the soundbites they use – stakeholder, engage, fair, unpin confidence. its like listening to old (new) labour spin machines. Sounds impressive but actually means nothing.

    The only answer for a credible compensation scheme is a product levy. Right now we have those doing the job right by identifying and avoiding weak or questionable products/service providers paying for a failed regulatory process that misses the problems in the first place.

    Hardly credible or fair especially when my clients are paying for this.

  5. David Parkinson 25th July 2012 at 12:25 pm

    Well Fancy That! Lets just have a one off fixed cost of 100% of Turnover & be done with it! Don’t Suppose they would even be happy with that ! Daft statement I know but daft seems to be all in these days!…

  6. So the financially strapped IFA will see his bill go up and the fund manager with deep pockets will see his bill go down. Clever. All part of the FSA master plan to remove independent financial advisers from the equation.

  7. If they’re not careful they’ll it won’t matter what charges are levied against the IFA sector because there won’t be many of us left to cover it at the rate they’re going. RDR, PI, SPS, Level 4, FSA Charges, Network Fees et al. We’re sinking baby….hold on there’s sharks in the water. Damned if you do, damned if you don’t.

  8. Why not get rid of the FSCS altogether – does it really instill market confidence?

    However failing this a product levy should be introduced. We must be the only industry where businesses not involved in an action resulting in compensation pick up the bill.

    Can you imagine Shell being asked to cough up for the clean up caused by the BP Mexico Gulf oil spill?

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