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FCA calls in industry for further FSCS talks

Regulator to feed back initial thoughts after consultation on FSCS reform

Industry representatives have been invited in for further talks with the FCA over its review of how the Financial Services Compensation Scheme is funded.

The FCA began its consultation on the future of the FSCS in December.

Among the options put out for discussion were making providers paying more into the pot, restrictions on professional indemnity insurance policy excesses and exclusions and increasing the limits of coverage in light of the pension freedoms.

The consultation closed at the end of March.

It is understood the FCA has now scheduled meetings with industry representatives in July to feed back with the FCA’s initial thoughts on the consultation responses.

One source close to the review says: “What’s encouraging is more time is being taken to properly understand the challenges. It did start off a bit too rapid.”

It is understood that meetings will include both adviser bodies and PI representatives.

Another source close to the review says: “We have spoken to some brokers to ask if we can do certain things to be on the front foot as an industry, rather than wait for the regulator to come up with some rules, but they may want to wait until they are pushed a bit further.”

PFS chief executive Keith Richards says he is still backing the professional body’s proposal to merge advisers’ FSCS and PI bill together into one pot.

He says: “We put in a strong recommendation that we need to look at a centralised pot. It’s not just about addressing the spikes or unplanned levies which are very unwelcome to advisers, but we also need a solution that allows advisers to retire without the fear of ongoing cover.”

The FCA also proposed adding a question to its Gabriel returns system for advisers to record sales data about higher risk investment products, with a view to this potentially being used to calculate a risk-based levy depending on the results.

However, Money Marketing has been unable to obtain data from the FCA with an aggregate picture of adviser’s returns regarding PI on Gabriel.

Advisers have to disclose the annual cost of their PI policy, the start and end date, and which insurer they chose, as well as policy exclusions and excesses.

While the FCA has previously said it was unsure on the idea of imposing mandatory terms on PI insurers, it is understood the intervention could take that form if the FCA decides to act.

A senior FCA source says: “If we go down that route there would have to be standard contracts.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 11th May 2017 at 7:54 pm

    The problem isn’t the method by which the FSCS is funded. It’s the FCA’s long-standing abysmal failure to stem the relentless slew of uninsured liabilities for advice on (mainly) UCIS that it’s taking on.

    • Sorry Julian but it is, how can you say its not ? …..it just not fair in anyway shape or form.

      This is irrespective of the FCA’s failure to do its job in fact its irrespective of the FCA even being in existence

      • Julian Stevens 12th May 2017 at 9:39 am

        I can say it’s not because, until relatively recently when the size of our levies started to skyrocket, hardly anyone (as far as I was aware) ever complained about them. It was (I believe) generally accepted that consumers should be able to call on a scheme of last resort if they’d suffered losses as a result of having been persuaded by a SMALL number of errant advisers to invest in an unsuitable product and that such a scheme should be funded (provided the scale of that funding isn’t extortionate) by the good guys (us).

        Such a system, provided it’s not allowed to get out of hand (as it has been), should promote consumer confidence in the adviser population, in the same way as should (in theory at least) advisers having to be regulated and hold PII. That objective has failed due to:-

        1. the generally low esteem in which the regulator is held (to which even Andrew Bailey has alluded by way of his reference to the FCA’s “sorry history”),

        2. its lack of accountability (because the TSC has no powers of enforcement or sanction),

        3. its failure to ensure that the PII policies of adviser firms selling toxic junk actually cover such sales (because the GABRIEL system is such a total crock) and

        4. its failure to prevent the individuals concerned from phoenixing into new regulated entities (which it decidedly lamely claims to be too difficult).

        Or do you not consider these factors to have any bearing on the issue?

        • It is not GABRIEL which means PII policies do not cover them. It is the fact that a PI policy expires after a year and any claim subsequently coming in will not be covered unless the insurer agrees to renew cover and the adviser is both willing and able to pay whatever premium the insurer demands.

          Compare this to, say the abestos claims where the historical insurer remained liable for the long gone employer.

          A PI insurer can say “oh yes we will cover you”, the adviser writes the business, the product goes toxic and the insurer says “we might have covered you when it was sold but not now we might actually have to pay out”.

          It is a fundamental flaw.

          • Julian Stevens 24th May 2017 at 8:20 am

            Yes, I see your point though, all too often, many if not virtually all those firms that sold high risk junk had no relevant PII cover at the time they did so. Thus, the issue of cover for such activities being subsequently withdrawn at the next renewal in the wake of first whiff of trouble is academic ~ it was never there to begin with.

            Were the FCA’s GABRIEL system worth a light and were the FCA to bother to check the data submitted (which, anecdotally, it doesn’t), the regulator would and should have blocked those sales and the liabilities resulting from the products in question having subsequently come apart at the seams and plunged to earth in flames wouldn’t now be falling on the rest of us by way of the FSCS.

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