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.