Aifa has written to Chancellor George Osborne asking him to change his plans for FSA fines to be diverted into the Treasury’s coffers and instead use the money raised to help fund the Financial Services Compensation Scheme.
Last month, Osborne announced that he intends to table an amendment to the Financial Services Bill so that fines collected by the regulator no longer go towards reducing levies for other firms.
Last week, Aifa chairman Lord Deben wrote to Osborne asking him to put the money towards funding the FSCS.
In the letter, he says: “Using the money in this way would ensure the money directly benefited the consumers of financial service firms.”
The Treasury declined to comment on Aifa’s suggestion but sources say Osborne intends to stick with his plan for the money to go into the public purse.
Earlier this month, Osborne told the House of Commons that the move would apply to fines handed down by the regulator since April, including the £59.5m penalty Barclays was slapped with after admitting some of its traders rigged the Libor rate.
The FSA is reviewing the funding of the FSCS although the process has been held up by delays in Europe over the Deposit Guarantee Scheme and Investor Compensation Scheme directives. In April, the regulator said it may push ahead with the review without final EU rules and a consultation document is expected this month.
One of the options under consideration in Europe is a prefunded scheme. Aifa says this approach has “many advantages” but warns it would mean there is a period where firms would be paying towards the establishment of the prefunded scheme as well as the current pay-as-you-go model.
The letter says: “The IFA sector is already struggling with compensation and regulatory fees, any increase will further reduce the viability of independent financial advice in the UK. The fines could be used to establish the prefund, mitigating the burden on firms.”
Ashley Law director Jock Cassidy says: “I am a Conservative but this Government has become arrogant and the speed with which Aifa’s idea was rejected is a bit daunting.”