Advisers have welcomed news the Financial Conduct Authority may introduce incentives through the Financial Services Compensation Scheme to encourage firms to avoid default.
The FSA December board minutes, published last week, show the regulator discussed the possibility of the FSCS incentivising firms to manage themselves well and avoid default, as well as those that assist others in the pool to improve management and conduct.
The board minutes say the regulator considered whether the proposal should have been included in the FSCS funding model review. However it says the FCA may return to the issue when it takes over in April.
FortyTwo Wealth Management owner Alan Dick says: “It is a brilliant idea and I welcome anything that could stop the good guys having to pay more for the bad guys.
“It shows the regulator accepts there is a problem and is looking for ways to deal with it, which is encouraging.”
Informed Choice managing director Martin Bamford says: “This is a step in the right direction. Anything that incentivises firms to avoid default should reduce the funding burden on well-managed firms.
“What is still needed is a fundamental restructuring of the funding system, so IFA firms are not paying for the failure of stockbrokers, spread betting firms and fund managers.”
But Yellowtail Financial Planning managing director Dennis Hall warns such a plan could be expensive.
He says: “There will be a greater level of reporting required to ensure firms are operating in the right way and there is a cost involved in delivering that.”
The FSA board also discussed whether to create smaller FSCS class sizes but decided it would be potentially “unsustainable and over-complex”.