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Apfa calls for audit of ‘unacceptable’ FSCS costs

Apfa is calling for an independent audit of the Financial Services Compensation Scheme’s costs after the lifeboat fund’s annual levy rose again for 2015/16.

The FSCS’ annual plan and budget, published last month, revealed the overall levy will rise from £276m in 2014/15 to £287m in 2015/16.

Investment advisers will contribute £125m towards the levy, a £13m increase on the figure from the previous year.

Life and pensions intermediaries, meanwhile, will have to cough up £57m, some £24m higher than the bill they faced in 2014/15.

The FSCS’s management expenses levy for 2015/16 has been set at £74.4m, down from £80m in 2014/15.

Apfa director general Chris Hannant says rising costs at the FSCS are unacceptable.

He says: “Despite a small decrease in FSCS’s management costs this year, the cost of continuing operations keeps increasing.

“We’re particularly concerned about the amounts being spent on their change programme and how the budget is being controlled. The estimated cost has increased by two thirds from 2013, yet FSCS thinks this is acceptable simply because it has saved money elsewhere. It isn’t.

“We believe the National Audit Office should conduct a value for money audit on FSCS’s strategic projects. We also want to see the FSCS commit to, at the very least, holding its costs steady for the next three years.”

The cost of an online claims processing system being introduced by the FSCS has spiralled from an original cost estimate of £12.2m in 2013 to £20.4m.

Apfa has also raised concerns about the costs associated with the FOS.

Hannant says: “Both APFA and the National Audit Office have said previously that FOS needs to do more to communicate to members how and why costs keep increasing. It’s disappointing therefore that there is still a lack of detail about what is driving the change in unit costs.

“FOS should commit to greater transparency around what it is spending the levy on, and then adopt a more analytical approach to identify in monetary terms the main drivers of change in the unit costs. Only then will advisers know if they are getting value for money.”

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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Derek Bradley ceo Panacea Adviser 24th February 2015 at 1:25 pm

    The increasing cost of regulation on firms is significant and for firms who have consistently kept a ‘clean sheet’ there is a feeling that this is not being rewarded quite as it should be.

    In what form that reward should be had previously been understood to see fines levied for bad practice and behaviour used to reduce the regulatory cost on firms who had ‘done the right thing’ with their customers.

    But that is no longer the case.

    Indeed it appears quite surprising that many so in the industry (if my recent conversations are to be a guide) are oblivious to the fact that those whopping fines (some £1,461,875,800 in the year to mid December 2014) are not being used to reduce costs in a way that may, indeed should be expected.

    We felt that a degree of clarity was now required as the fines were, it seems, just going straight to the Treasury, without passing ‘Go’. A craftiliy legislated ‘skim’ of gargantuan proportions

    What seems even more bizarre is that the vast fines levied by the FCA are against, in many cases, banks bailed out by the taxpayer on the actions of the Government.

    Yep, you are right. The taxpayer ‘owned’ banks are fined for bad behaviour, therefore, these fines are in effect paid by the taxpayer and not the offending individuals.

    In levying these fines the Treasury and the FCA are simply engaging in a breathtaking form of state sponsored and legislated money laundering.

    It goes like this.

    Banks bailed out by the government of the day
    Bad behaviour of epidemic proportion discovered and/or declared
    Regulator investigates in a manner that would do General Melchett proud
    Guilty verdict delivered
    Sentence predetermined and fines calculated
    Fines paid to the FCA by the very banks that have been bailed out by the taxpayer.
    Money returned by FCA to the Treasury, who it could be argued has paid the fine by way of earlier taxpayer bailout.
    And it’s tea and cakes at the Ritz before you know it.
    This is madness. If the banks, especially state supported banks, are such villains keep them out of the FCA’s jurisdiction and budget, quarantine them in the Treasury or Bank of England until they are safe to come out, disease free.

    I wrote to the FCA with a ‘Freedom of Information’ request in November, it read as follows:

    “The total amount of FCA imposed fines levied so far in 2014, according to the FCA website today stands at £1,471,431,800. There was an understanding, possibly even a requirement in the industry, that fines would be used to reduce the regulatory cost burden on firms. In fact rewarding good practice at the expense of bad. It now appears that this is no longer the case. I would be grateful if you could confirm the following:

    How much of the above figure has been paid away to the Treasury in 2014 for so called ‘good causes’ use?

    On what or whose authority was this ‘pay-away’ made possible

    When was that decided?

    Was the original intention of cost reduction made clear to the Treasury before the decision to ‘pay-away’?

    Was any attempt made to persuade the Treasury that fines should really be used to offset the regulatory cost burden on firms?

    What was the budgeted cost of regulation to date in 2014?

    What is the actual cost so far for regulation in 2014?”

    The reply, now received reads as follows:

    Freedom of Information : Right to know request

    Thank you for your request under the Freedom of Information Act 2000 (the Act), for information about FCA fine levies and HM Treasury (HMT). The full request is shown in the attached Annex.

    Your request has now been considered and we hold the information which falls within the scope of your request. I have numbered your request for ease of reference and will answer each point in turn.

    1 How much of the above figure has been paid away to the Treasury in 2014 for so called ‘good causes’ use?

    To date, we have received, £1,461,875,800 rounded to the nearest 100, (99.4% of £1,471,431,800 of the fines issued in the calendar year 2014). The net figure paid to HMT of £1.37bn (as at 10/12/2014) reflects payments made in 2014 to date (iro 2014 fines only) less 2014/15 budgeted Enforcement costs which we retain and give back to fee payers. We have no knowledge of what HMT do with these funds, as once they are paid over it is up to HMT how they use the money.

    The penalty receipts paid over to HMT are as per paragraph 20(6) of Schedule 1ZA Financial Services and Markets Act 2000 (“FSMA”), attached.

    2 On what or whose authority was this ‘pay-away’ made possible.

    This was a decision by Parliament, Statutory Instrument 2013 no.418 – Financial Services and Markets – The Payment to Treasury of Penalties (Enforcement Costs) Order 2013.

    3 When was that decided?

    The above-mentioned Statutory Instrument was laid before Parliament on 27th February 2013 and came into force on 1 April 2013.

    4 Was the original intention of cost reduction made clear to the Treasury before the

    decision to ‘pay-away’?

    HMT was fully aware of the arrangements in place to return penalty receipts back to the industry prior to introducing Statutory Instrument 2013 No.418.

    5 Was any attempt made to persuade the Treasury that fines should really be used to offset the regulatory cost burden on firms?

    The predecessor body, the FSA, did discuss the impact of this new arrangement on firms with HMT and successfully made the case that penalty receipts paid over to HMT should at least be net of our Enforcement costs. As a consequence, the regulatory cost of Enforcement activity is not borne by the industry. This is evidenced by firms continuing to receive a “deduction” on their FCA annual fees.

    6 What was the budgeted cost of regulation to date in 2014?

    The FCA’s Ongoing Regulatory Activity (ORA) budget in 2014/15 is £452m as per our published business plan for 2014/15.The budgeted cost of regulation from April to 30 October is £264m.

    7 What is the actual cost so far for regulation in 2014?

    The actual FCA ORA expenditure from 1 April 2014 to 30 October 2014 is £264m, in line with budget.

    If you have any queries then please contact me.

    So, regulated firms are paying £264m in fees to the regulator to cover the FCA budget, in addition they are paying levies to the FSCS for the 2014/15 budget of £313m,for 2015/16 it will be set at £287m.

    The levy can cause considerable distress to small advisory businesses as the sums are often large, unpredictable in amount, timing and require immediate payment.

    While all this is going on, £1.37bn in fines is being ‘skimmed off’ to the Treasury and being used, assuming we actually believe the Government spin, for ‘good causes various’ like sending the Tower of London Poppies on a UK tour. Having seen the display last week, packed and ready at the Tower, I think some change may be left over.

    To quote another former US President (George Washington) “It is better to offer no excuse than a bad one.” This is unfair, immoral and must stop.

    The biggest obstacle to consumers getting easy access to independent financial advice is cost.

    The biggest cost to financial services firms after salaries are for regulation.

    Surely it does not take too much cerebral activity to calculate that with the FCA costs of £264m plus the FSCS budget of £313m, fines exceed regulatory costs by £894,431,800.

    This chould mean that offsetting fines against the cost of regulation and compensation levies could have given the industry ‘good guys’ a ‘free ride’ for over 2 years and those hard pressed ‘consumers’ or give “low end savers” as Mark Garnier MP calls them, access to financial advice at a very much reduced cost as they can benefit too from the reduction in the regulatory cost burden.

    Dare I suggest that these fines could have even funded the FSCS based upon the current budget for at least 4 years, again reducing costs for consumers?

    That would be a very moral, even sensible use of such large fines would it not Mr. Osborne?

  2. Spot on Mr Bradley

    Just goes to show our regulator is not so independent as they would have us believe ! just a very effective political tool,

  3. Thanks Derek – some very interesting points….

    I have a basic premise when it comes to financial planning – the simple solutions are often the best so only complicate it if needed.

    Yet when it comes to taxes, Government etc it seems that there is a need to add layer after layer of regulation and whilst the premise of FS regulation, the FCA and the FSCS etc is sound, it creates so much beaurocracy that the cost becomes prohibitive…. a cost ultimately passed on to the client.

    The fact is that good firms pay for the costs of bad advice…. simply speaking, that should not be deemed to be fair. Furthermore, reducing ‘fixed costs’ for advice firms – both financial and ‘time’ costs – will lead to the benefit of clients.

    Why generate treassure receipts in such a convoluted way…. simply tax what needs taxing, charge what needs charging and ensure there is no ‘cross subsidy’.

    *mini rant over*

  4. and also just goes to show how we need a system to pay for FOS and FSCS which is paid for by the people who need it rather than firms that risk being put out of business by ever rising regulatory costs.

    So lets give up trusting them to use fines to reduce their own costs and put a product levy in place to pay FSCS, FOS and even lets be bold and include FCAS as well

    then they can fine as they wish and give the money to charity as seems to be inferred or to the treasury which is what is happening or anything else that is legal and we will not care

  5. So why isn’t APFA pressing for a product levy at point of sale?

    The NAO will be of no assistance whatsoever (its supposed oversight of the FCA’s expenditure and fiscal jurisprudence is a hollow sham) and, more to the point, it doesn’t give a flying fig about any “calls” from APFA for it to do anything. It takes its orders from the Treasury.

    Advisers will never get value for money from any element of the regulatory system. As far as the powers that be are concerned, we (as a collective) are the very reason why regulation is needed in the first place.

  6. @Derek- You missed something out in your (in)virtuous circle of money…… the syphoning off by an external consultancy firma s the FCA don’t always have the necessary skill set within their organisation or they are too bust counting paperclips.

  7. Apologies if Derek covered this is his email, I gave up reading it in full … but I’m sure a mechanism could be found to return some of the fines back to certain “good” parts of the sector via some sort of no-claims discounts. Work out the levy for the industry as a whole and those will no claims get a discount (lets say 25% for the year if you stay in a certain “low risk” FCA category and/or have no complaints or referrals to FOS) which is funded by part of the fines, any that are left over go to HMT be spent “wisely”. That way the “bad” parts of industry don’t benefit from fines and the “good” guys, for once are rewarded.

  8. Derek Bradley ceo Panacea Adviser 24th February 2015 at 3:12 pm

    In an episode of the 1980’s TV series “Minder, Arthur Daly is seen trying to sell the landlord of the Winchester Club, Dave Harris, a watch. Arthur says, “At that price it’s a steal”, to which Dave replies, “That’s what worries me Arthur”.

    As per my previous post, in January, we expressed grave concern that the Treasury is treating fines levied upon the banks and the financial services industry as another form of tax raising, to be spent in ways various, or not at all, with the public expected to believe the spin that it is ALL to be spent on good causes.

    The Treasury trumpet, being loudly blown by the Prime Minister and the Chancellor, was sounding some really caring, sharing notes about how the banking fines will be used, for example to help wounded troops recover by way of various military charities.

    It makes a great pre-election sound bite, and after all, who would cast the first stone at that most laudable of causes, even though the terrible state of our wounded and often cast aside veterans is not, at all, the fault of the banks or indeed the financial services industry.

    But is all as it seems, are the fines being freely donated by HM Treasury toward those good causes as stated? How much has been spent and more importantly, how much has not been spent only to disappear into the general taxation pot or simply reducing the national debt left by the previous Labour government?

    Here you go, http://bit.ly/1D7CpOp

    The answer will make you even more mad as £1.322bn is still left over. Surely a teeny weeny bit could go to the FSCS, fines are being hoarded and certainly not being spent in the manner implied or pledged by HMT.

  9. Perhaps APFA could also do something about the unjust cost of having (as a safety net for the minute number of cases where debt counselling takes place) Consumer Credit licencing.
    My point here is that APFA are ineffective, fail to achieve anything and yet still appear to have some credibility.

  10. The FSA/FCA made some vague waffly noises about “regulatory dividends” for those of us with clean track records but guess what? Nothing at all actually happened and we’re all still (and probably forever will be) regulated according to the lowest common denominator. It sounded good at the time when Martin Wheatley had newly acceded to the throne at Canary Wharf but, when it came down to it, he was persuaded simply not to bother taking such a nice (and fair) idea any further. There were just too many other motorway pile-ups only just over the horizon and loose cannons on deck like Clive Adamson to worry about.

    Read https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300126/14-705-regulators-code.pdf. This s how the FCA is supposed to conduct itself but, in practice, it gives not a flying fig about any of it and until somebody forces it to do so (don’t even dream of APFA stepping up to the plate) it never will. The FCA and, by association, the FSCS and the FOS, enjoy statutory immunity from, well, just about everything. They’re certainly under not the slightest obligation to take a scrap of notice of anything APFA might think or say. And so they simply don’t. Yeah, there’s the occasional meeting over issues such as the longstop but nothing ever comes of them. The can just gets kicked a mile or two further down the road and so it goes on.

  11. @Julian – Well thanks for that (Not) I am quite sure that both Alan and Tim Harvey really appreciate your (lack of) support bearing in mind Tim drove for 5 hours (each way) plus 1 hour meeting with Chris H, & Alan plus 2 hours with the FCA and Alan and I did similar for NO pay or even expenses claim.
    Get off your fat arse and put your arse where your mouth currently is i.e. not on a chair at home/your office, but in front of the FCA arguing your/the industries case.
    I very much hope that MM WILL print my expletives because as Alan will hopefully confirm I did NOT mince my words with the FCA either when we met them yesterday and whilst it may not result in any change, I think it did start to make them sit up and think.

  12. Neil F Liversidge 25th February 2015 at 5:46 am

    @ Sam Caunt: Ever thought that maybe APFA could do a lot more if the armchair generals all signed up as members of APFA and paid subscriptions? I’m in the same situation as you re’ the CCL rip off so guess what? I am a member of the APFA council (unpaid) and I AM doing something about it, i.e. lobbying my MP and using our own situation here as a classic case study of why the CCL is a rip off and an exercise in timewasting. Also, those whose membership is subsidised by their networks (mentioning no names…!) could also take up the option to join APFA as individual firms, pay a bit more and directly elect their own members to the council. Face the facts: APFA will never be as effective as it could be until those who want and need representation are prepared to put their hands in their pockets and pay for it. Anyone who whines about APFA supposedly being dominated by the networks and nationals (it isn’t but hey – why waste a good excuse?) has the option to join as an individual firm. When all the small firms are members then guess what? APFA will be dominated by small owner managed businesses like mine and the council will consist largely of THEIR elected members. It follows like night follows day. You just have to be willing to pay the price, because freedom isn’t free. Cue the usual round of “I won’t join APFA because … ” comments. The usual suspects can save themselves the trouble, because we’ve heard it all before. Now I’ll look forward to my latest demand from the FCA, FSCS, FOS et al. I wonder if they’ll let me haggle over the price like they are forever telling our clients to haggle with us? We all know the answer to that one of course.

  13. “maybe APFA could do a lot more”. Such as? You’re always saying this Neil but you never give any examples. Do you really believe that the FCA would treat APFA with any less contempt than it does now if it had twice the budget and twice the number of members? Or that it would have any more influence with any body or persons who might bring to bear on the FCA some meaningful pressure? The TSC can’t, so who else might?

    Membership of APFA is hardly necessary to lobby one’s MP. My MP’s constituency office is, as the crow flies, about 50 yards from my house and I’ve met him by appointment to put to him why he should take our side against the total lack of accountability on the part of the regulator. He’s a complete waste of space, but that’s by the by.

    Any other ideas?

  14. @Julian, if we told you and idea which would work, you would/ not do it. Put yourself up for the council or as Alan and I did, at least make sure you are on the longstop working committee as that is your beef. I don’t know if your network will let you though, in which case it will cost you an extra 245 per annum I think it is over what the network members pay and then you could be a small firms rep if someone will vote for you. Registration fee is 245 per annum and an extra 116.50 for 1-10 Approved persons so I suspect you are getting it for a lot less than a quarter of what I do as a 1 adviser firm as I pay the full wack, but you are even louder than I am!

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