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.