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Aifa wants rethink on FSCS

Aifa is calling for an urgent fundamental review of the Financial Services Compensation Scheme.

Director general Paul Smee believes the FSA needs to look as a matter of urgency at whether liability should fall more on providers that design flawed products than those who advise on the products.

He says the present system places too much liability on advisers and is calling on the regulator to revisit where the boundary lines should fall.

Smee also believes that the fairness of the FSA’s division of the industry into sub-schemes for the purpose of the compensation scheme needs to be reconsidered in the light of the relationship bet-ween claims before and after depolarisation.

He points out that at present it appears that multi-ties will be in the same contribution group as IFAs, which will work out for next year when most claims will come from a polarised age, but could fall apart in a few years when this is no longer the case.

Smee says the onset of depolarisation is a good opportunity to review how the scheme should operate, particularly as provider subsidies for IFAs cannot be expected to continue in their current state and will have to be renegotiated.

Smee says: “The FSA needs to look as a matter of urgency at the boundary lines between product provider and adviser, and where liability should fall when a flawed product has been designed by a provider but also advised on by an IFA. At the moment there is too much emphasis on the adviser.

Michael Philips partner Michael Both says: “If a fund manager cocks up on performance or charges are higher than the illustration says, then I do not see how that is the intermediaries’ fault. The levy needs to reflect that.”

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