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Aifa proposes professional advice FSCS sub-class

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Aifa has put forward the idea of creating a professional advice sub-class as part of future reform of the Financial Services Compensation Scheme.

Aifa and the British Insurance Brokers’ Association presented in the Houses of Parliament last night at an All Party Parliamentary Group on insurance and financial services evidence session on the FSCS.

Aifa policy director Andrew Strange (pictured) argued a professional advice sub-class could be set up to differentiate professional advice firms from the likes of stockbrokers, firms where intermediation is a secondary activity or firms who are not meeting professional regulatory requirements.

Strange said the FSCS system operating in the UK cannot be taken in isolation, and needs to be placed in the context of developments in Europe.

He said: “Europe has a tripartite of silos – an existing directive on deposit guarantees, a white paper on insurance guarantee schemes and there are tabled amendments to the investor compensation scheme directive.  However, none of these schemes include the act of intermediation in its own right, with Europe preferring the ‘caveat emptor’ approach to advice. 

“Whilst Aifa believes that cognisance of and engagement in the European agenda is vital, we do not propose removing the consumer protections afforded to people today in the UK.  However, as part of the wider debate and review of the compensation scheme it is interesting to question whether a fourth ‘silo’ should be created – where like-for-like professional advisory firms can be recognised and support each other.”

The trade body will be publishing a discussion paper on FSCS reform later this month.

Strange argued that although there have been calls for the FSCS to be pre-funded, this does not represent a better system than the current funding model.

Aifa estimates the transition cost to a pre-funded model, when advisers would still be paying FSCS contributions on top of pre-funding, would mean an equivalent levy of £100m a year for the investment intermediation class for the next five years.

Aifa supports the idea previously put forward by the FSA where firms’ existing regulatory capital could be held on account when a firm leaves the market, and returned to the firm after a set period if no claims had arisen during that time.

Strange added that Aifa would welcome further debate on funding the FSCS via a product levy.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Aifa supports the idea previously put forward by the FSA where firms’ existing regulatory capital could be held on account when a firm leaves the market, and returned to the firm after a set period if no claims had arisen during that time
    Aifa supports anything that makes life even more difficult for advisers.
    Including No grandfathering.
    Why not just crawl away aifa no one really cares what you think anymore.

  2. Strange indeed.

  3. When the FSCS was last amended it was not envisaged that the cap for a class would be breached and this was because the value of business being written by different classes was not really appreciated. Now that we understand better the potential losses that arise it is clear that a levy on intermediaries is completely unsustainable going forward. If consumer protection is to overide caveat emptor, a product levy must be costed as soon as possible. As this can only happen quickly with the backing of the members of the ABI can we expect an early announcement that this will be considered. If the ABI wish to delay such a move I look forward to them explaning why consumer protection is not important to them.

  4. With regard to caveat emptor being overridden, when FSA talk about ‘consumer protection’, they mean no such thing. FSA is the spawn of that arch-statist G Brown and is only interested in ‘consumer control’, denying them reasonable access to independent (or ‘true’) advice, denying them the choice of how they then pay for advice and ultimately forcing them into the loving arms of their target-driven buddies at the banks.

    Anon at 1.42pm is right, however, no one, and especially FSA, is interested in what Aifa has to say. Actions – or in their case lack-of-actions – speak louder than words. Taking IFAs money while actively conspiring against their interests is a downright scandal. They should be ashamed of their grubby little selves.

  5. The FSA has placed reform of the way in which the FSCS is funded firmly at the bottom of its list of priorities and is entirely unconcerned with anything that AIFA may have to say on the matter.

    As we saw last Wednesday, Sheila Nicoll is happy to sit before the TSC smirking smugly in the knowledge that the FSA is effectively untouchable because it [the TSC] has no powers under the FSMA 2000 to issue any directives. Sure, the TSC can pose a few searching questions, but all the FSA has to do in response is offer a few token gestures of cooperation without actually having to do anything to back them up. When it comes to dealing with a body as toothless as AIFA, the FSA doesn’t even have to do that.

    AIFA may have at heart the best interests of its membership but it has no clout and, for its part, the FSA enjoys the armour-plating of statutory immunity from prosecution. It can do whatever it wants. So why should the FSA take the slightest bit of notice of anything anyone else might have to say about its failures and never-ending succession of new regulatory initiatives? AIFA knows this, but it has to be seen to be making a few noises merely to justify its existence. That’s all it amounts to really.

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