Advisers have hit out at the FSA’s rejection of a product levy as an alternative way of funding the Financial Services Compensation Scheme and warned that clients will bear the brunt of higher costs.
The FSA published its consultation paper on the FSCS’s funding model last week. It proposes an increase to the annual claims limit paid by investment intermediaries from £100m to £150m.
Under the proposals, the FSCS would project potential compensation costs over three years rather one year as is the case currently, with the exception of the deposit class.
FSCS funding for claims against banks, building societies and insurers would be separate from claims against Financial Conduct Authority firms such as advisers and fund managers.
The regulator also wants to scrap the current sub-class system within product areas and instead create a retail pool that would be triggered if one or more FCA classes breach their annual claims limit.
The FSA has rejected industry suggestions to adopt a product levy or make changes to the way firms are allocated to classes.
Aifa policy director Chris Hannant (pictured) says: “We are disappointed the idea of a product levy has been dismissed before being given any serious consideration. The FSCS is effectively insurance protecting consumers against any future losses, and a product levy is a far more honest way of showing them how much they pay.”
Atkinson Bolton Consulting director Simon Gibson says: “A product levy allows the risk to be tailored, with a higher levy applied to higher-risk products. The issue of a higher claims level for investment advisers will just add fuel to the fire of those that claim the FSA does not want the small adviser to survive.”
Premier Wealth Management managing director Adrian Shandley says: “Higher costs to firms end up costing clients more, because firms cannot absorb any more regulatory costs. We have had to pay massive amounts of money for products we never had anything to do with.”
FSA director of conduct policy Sheila Nicoll says: “We recognise the importance of making sure this increase is affordable and will not put firms out of business.”