Aifa says it has received confirmation from FSCS personnel that the £43m of the £70m levy was allocated to the sub-class following legal advice and therefore it is “imperative” that this advice is published. “We will be negotiating with FSCS to have their legal advice for public scrutiny,” says Aifa director general Chris Cummings.
The trade body stresses members are being asked to pay too much towards this year’s compensation scheme and says it will continue to challenge the basis on which the FSCS decided to bill investment advisers for the failings of structured product provider Keydata.
Aifa believes this is a “regulatory and supervisory failure” with Keydata inappropriately authorised by the FSA and says the legal precedent in which a challenge can be brought is on the grounds of evidence of ‘a mindet of reckless indifference’ within the FSA.
Due to the size of the majority of IFA firms they will be hit with a levy far less than the average being paid by the 6,500 firms that fall in the investment intermediation category. The amount payable will also be dependent on the amount of investment business written.
Aifa calculations indicate the likely cost of the interim levy will be approximately £1,100 per full investment adviser. However, for a typical member, where investment exposure constitutes 40 per cent of his/her business, the figure is likely to fall to £440 per adviser, it says.
Advisers can use the Premium Credit instalment arrangement set up to pay FSA fees, which charges an interest rate of between 7.5 per cent and 9 per cent dependent on trade body membership.
Director general Chris Cummings says: “This has been a failure of FSA supervision and as such adds further weight to our calls for FSA to review how it supervises firms, the risk models it uses and the allocation of costs. IFAs are being asked to pay too much for the failure of others.”
Aifa says the legal advice it has sought focused on both the architecture of the FSCS and the legal precedents in challenging any regulatory failings. The advice indicates that the legal precedent on which a challenge can be brought is on the grounds of evidence of “a mindset of reckless indifference” within the FSA. The action the liquidators of BCCI undertook, against the Bank of England, is a precedent, says Aifa. The liquidators lost the case, as they failed to prove ’reckless indifference’, and had to pay the BofE fees as well as their own costs.
Cummings says Aifa is also examining the competition implications of the levy. He says: “We have also discussed the matter with consumer groups – as the mounting costs of regulation risk driving good firms out of the market – and this will reduce access to advice.”
Cummings says: “More importantly, we still believe that this is a regulatory and supervisory failure, with Keydata inappropriately authorised by FSA. In similarity to other recent failures, such as Pacific Continental Securities and Square Mile, Aifa believes the regulator should have stepped in far sooner.”