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FCA calls industry talks over FSCS provider contributions and PI bill merger

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The FCA is continuing to discuss the possibility of a new centralised compensation pool to replace the Financial Services Compensation Scheme as well as how providers should contribute to the lifeboat fund.

Money Marketing understands that since the FCA released its long-awaited consultation on FSCS funding reform in December, it has continued to schedule roundtables and focus groups with a range of industry representatives.

Over the last two weeks, discussions have focused around provider payments and combining professional indemnity insurance and FSCS bills.

It is understood that the Association of British Insurers has been firm in meetings that providers should not be included in the same funding pool as advisers or subsidise advisers’ FSCS fees.

When the consultation was released, the ABI released a statement saying it was “very concerned at the proposal for insurers to bear additional costs to guard against failures by intermediaries such as brokers and advice firms – something insurers have very little direct influence over.”

The ABI said: “We see no justification for the blurring of responsibilities in this way. We will be engaging fully in the consultation, with a focus on challenging the rationale behind this idea.”

The trade body said it would comment further when it had finalised its response to the consultation.

One source with knowledge of the meeting described a session on provider contributions as “fireworks”.

A senior FCA source confirms that the ABI has greeted proposals to increase provider contributions “like a lead balloon”.

Personal Finance Society chief executive Keith Richards says: “They have a valid argument but equally there is also a responsibility to protect the public interest from failures against products they manufacture.

“You can see why the regulator is coming at it from this perspective…Advisers have actually paid for manufacturers failings, but the argument we have always maintained is about broadening the scope. If you reshuffle the levy decks chairs you have to make some people happy and some upset.”

“No one is going to easily concede to paying more contributions.”

Richards has now expanded his idea of a ‘product levy’ – a small additional fee to be paid on top of investments by consumers – so that it could be used not just to offset FSCS costs but also to fund financial education and awareness projects like those offered by the Government’s public guidance services.

Richards says the regulator also had further discussions at a roundtable last week about the possibility of creating a centralised compensation fund that would merge professional indemnity insurance cover and the FSCS.

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Just equitable fund the FSCS !! I don’t see why a centralized fund will be more expensive ?

    The moment you try to get the insurance industry (PI will be no different) to take on more risk, the end result will be inevitable

    Insurance has one basic rule take the money don’t pay out, and when you make an insurance compulsory premiums go up exclusions increase and there is only one winner, but lots of losers, but most of all the consumer.

  2. Change is needed 1st February 2017 at 1:49 pm

    “very concerned at the proposal for insurers to bear additional costs to guard against failures by intermediaries such as brokers and advice firms – something insurers have very little direct influence over.”

    Who exactly does have influence over the failure of brokers and advice firms ? The FCA? Certainly not other advice firms who regularly blow the whistle and no action is taken…

  3. A product levy is explicit. It ensures all parties know where they are. Nothing to stop the insurers showing it as a line entry on a Key Features Document and pass the cost directly to the consumer.

  4. Nicholas Pleasure 1st February 2017 at 2:41 pm

    “Richards has now expanded his idea of a ‘product levy’ – a small additional fee to be paid on top of investments by consumers – so that it could be used not just to offset FSCS costs but also to fund financial education and awareness projects like those offered by the Government’s public guidance services.”

    So the product levy should also fund the MAS – that seems fairer than advisers paying for it but really it is education and should be paid for by the state.

  5. ABI says manufacturers of dodgy products should not help fund the FSCS. Thats a bit like Boeing having to pay for a faulty engine, made by Rolls Royce, which brings the plane down and not have any recourse to get RR to pay for part of the damage cause. Is the ABI happy for mortgage advisers to have to fit some of the bill for investment advisers who go t*ts up over investment product failures? Get a grip of yourselves and waken up to the real world for God’s sake. The FSCS bill seem to relate around products in the huge majority of cases so of course manufacturers should pay more towards the

  6. None of this will address the colossal volumes of uninsured liabilities for past misdeeds which have already been taken on by the FSCS and those which have yet to emerge. We all know exactly which body is responsible for having allowed this to happen yet still we see no admission of culpability or even anything much in the way of measures to prevent it continuing.

  7. Surely the first port of call for compensation funds should be the fines levied on the bad guys instead of a levy on the good guys.

  8. Should probably keep that to myself... 3rd February 2017 at 4:26 pm

    To throw petrol on an already heated debate… Bad guys Vs good guys… difficult to tell who is who. I think the FCA and FSCS need to take a good hard look at why both advisers and providers might be up in arms about additional costs… Could it be that a huge number of complaints result in the FCA siding with the client, when it was obvious to anyone that they knew exactly what they were getting themselves into? In my recent experience, numerous consumers have been able to chase speculative claims for excessive sums as a result of unregulated/unchecked ambulance chasing firms encouraging consumers to fight for compensation that I’d question whether they were owed? Surely they should stamp out such unchecked firms and thus reduce the volume of complaints… knock on effect, less need for FSCS and reduced costs for all involved! Does this not all boil down to the fact that ‘buyer beware’ is redundant and that if you now make a claim, you are 99.9% likely to win against any financial services firm/provider and that there is a huge cost to managing this? My take: Don’t look at ‘who should cover what’ but address the issue of escalating claims. Prevention, not better than cure?

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