Advisers have urged regulatory authorities to consider introducing some form of product levy as an alternative means of funding the Financial Services Compensation Scheme.
The recent FSCS £93m interim adviser levy, which followed an interim levy of £80m the pre- vious year, both mainly due to Keydata, plus a £40m annual FSCS levy bill for 2011/12, have caused outrage among advisers and driven calls to urgently reform the current funding model.
Tenet distribution and development director Keith Richards says radical reform must be on the agenda. He says: “The suggestion of moving to a levy on every product is perhaps a feas- ible option and certainly one worth considering. An alternative could be a regulatory and compensation scheme premium charged as a percentage of the investment or product con- tribution. This would not be dissimilar to insurance premium tax, although in this instance it would fund regulation and compensation.”
Evolve Financial Planning director Jason Witcombe says: “A product levy of some description seems to feel like a fairer way of funding the scheme. Given that the FSCS is effectively an insurance scheme, a levy would link that insurance to the sale of a financial services product.”
SimplyBiz chairman Ken Davy (pictured) says: “The present system is fundamentally flawed because it requires the people who have not contributed to the prob- lem to pick up the liabilities. The simple, fair and equitable solution is a product levy.
“Paying a fraction of a penny for each £1 of investment would mean a very small payment, but would ensure that the people who benefit, consumers, would make a contribution.”
Aifa director Robert Sinc- lair says: “There are lots of opt- ions for reforming the FSCS, none of which are perfect. There is an argument that says a pro- duct levy might work better than the current system. But there are problems in deciding which products get caught, what level the levy is at, who holds it, and whether consumers recognise it as paying for protection. That said, a product levy would be a simpler way of funding the scheme and we think it is a positive alternative worth pursuing.”
The FSA has delayed a review of FSCS funding, which was due to begin late last year, due to the upcoming regulatory shake-up.