Adviser trade body Apfa has said that compensation limits for claims on the Financial Services Compensation Scheme should not be increased.
Apfa has warned that increasing current limits could make the lifeboat fund unsustainable, and that consumers should bear more responsibility if they want greater security from the FSCS.
The trade body’s response to the FCA’s consultation on FSCS funding reform reads: “We are strongly opposed to any increase in compensation limits and believe that the current provision should be maintained. We understand that the FSCS has to provide adequate consumer protection and foster consumer confidence, but we also firmly believe that consumers should have a certain level of responsibility in relation to the investment choices they make and be aware of the consequences of their actions.”
“We are opposed to the extension of compensation limits as we believe consumers should have a certain level of responsibility in relation to the investment choices they make (greater protection should be commensurate with a consumer taking less risk). Also we are concerned that any increase in compensation limits may pose the risk of FSCS costs becoming unsustainable.”
“Whilst we agree that the FSCS should provide consumers with a certain level of minimum consumer protection, its purpose is not necessarily to provide full compensation on speculative investments.”
Currently, investors can claim up to £75,000 for deposits, £50,000 for claims against investment intermediaries, and 100 per cent of claims on pure protection and long-term insurance products.
Pressure on the PI market
Apfa also sounded a note of caution on possible proposals to introduce mandatory terms into professional indemnity insurance policies, which could have the “unintended consequences” of reducing the availability of cover.
Apfa director general Chris Hannant says: “If the PI market is not working effectively, this is because it is responding to the market conditions it finds. It is difficult to blame PI providers for building in exclusion clauses and high excesses when they are faced with insuring areas where liabilities are uncertain as a result of changing regulatory expectations and unpredictable FOS outcomes. The solution therefore is not to try to force the insurance market into providing more effective cover through mandatory terms, but to resolve the root cause of the problem.”
Having ruled out imposing mandatory terms on PI insurers in the past, it is understood that, if the FCA decides to intervene in the market, that mandatory terms would likely be the way they would do so.
A senior FCA source says: “If we go down that route there would have to be standard contracts.”
Should unregulated products be covered?
In its consultation response, Apfa also reiterated its call to take unregulated products outside the scope of FSCS protection.
Apfa writes: “The government and the FCA should work together to ensure that there is a clear distinction between the world of regulated products, provided through regulated advice, which are covered by the FSCS and the world of riskier, unregulated products, provided by unregulated introducers, for which the FSCS provides no protection.
“In this way, unregulated would mean unregulated and greater protection for retail consumers would be ensured.”