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FCA proposes provider contributions to FSCS

FSCS-Piggy-Bank-500x320.jpgProduct providers will have to contribute more to the Financial Services Compensation Scheme under new proposals outlined by the FCA today.

After an industry consultation, the regulator is proposing that product providers will have to contribute around 25 per cent of the compensation costs which fall to the adviser funding classes.

Money Marketing understands the proposal has been vigorously contested by provider groups including the Association of British Insurers in meetings with the FCA.

The FCA says in its paper: “There was support in the responses to the consultation for compensation costs to be divided equally between product providers and intermediaries. There were also strong views from product providers on ensuring an appropriate reflection of responsibility, given that the majority of claims on the FSCS over the last four years have been in respect of intermediary classes.”

The regulator is also planning to merge the life and pensions and intermediation funding classes, meaning advisers will no longer pay levies based on how much pensions business they write compared with investments, but be charge on overall volume instead.

Threesixty managing director Russell Facer hopes the FCA continues to focus on “supervisory activities to reduce down the number of claims on the FSCS rather than just focus on splitting the compensation pot”.

Last week, Money Marketing revealed the FCA had decided to pave the way for a risk-based levy by introducing a new section on firms’ Gabriel returns where they will have to disclose non-mainstream pooled investment sales from April next year.

NMPIs rely on “unusual, speculative or complex assets” and include the likes of unregulated collective investment schemes and traded life policy investments.

This has been confirmed today, as have measures to introduce debt management firms to FSCS coverage and extending FSCS protection to structured product intermediation.

Aegon pensions director Steven Cameron says: “The FCA’s proposal that product providers pay 25% will no doubt split the provider community but should be examined on grounds of fairness and affordability across industry players including fund managers.”

Cameron adds: “Our adviser research shows a strong support for some form of risk based levies, for example where advisers are involved in higher risk products so it’s important the FCA continues to explore this as well as looking for improvements to the operation of the [professional indemnity insurance] market to reduce the overall claims falling on the FSCS.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Nicholas Pleasure 30th October 2017 at 10:28 am

    I appreciate that providers do not want to cough up for this but surely a healthy intermediary sector is vital for most of them. For fairness, they should probably contribute according to how much intermediary business they each receive.

    Whilst they will argue that they have no control over rogue intermediaries I would argue that I don’t either. In a fair world none of us should be paying for constant regulatory failure.

    Hopefully asking providers to pay will mean that these strong, well resourced companies will put immense pressure on the FCA to actually sort out the problem rather than simply deciding how the invoice is divided.

  2. The one thing that makes me really angry on this, is not one single person (and i mean in power that can make a difference) has the balls to real sort this out !

    The PI system is skewed to benefit one person and one person only

    What we have here is a re-hash of a completely failed, failing, unfair system because ultimately it the consumer who pays, its just semantics, where this money is collected from and by whom.

    I run a business and my business has to be profitable, what comes in by way of expenditure has to be covered by income, this income is derived by my clients.

    I still think equitable fund the FSCS & ditch the need for PI, base all funding on, risk, complaints, product spread, product levy and turnover.

    What in essence, we have here is…. again…. is lipstick being applied to the pig

  3. Would think introducing this measure will lead to some providers asking questions of advisers regarding the advice given. Some providers are already questioning advisers as to the nature of the advice given for DB transfers – ie was the advice positive?

    Don’t have a problem with this myself as long as they pay up and reduce our level of payment.

    Agree with Nicholas- we have no control over rogue advisers but the buck stops with the FCA on this one.

  4. Why should regulated providers be required to share the costs of covering uninsured liabilities in respect of the mis-selling of unregulated products? It’s nothing to do with them.

    Although it’s already waay too late, why doesn’t the FCA simply prohibit firms from selling ANYTHING in respect of which they don’t hold suitably robust PII cover? And go after those who’ve been doing so in the past, in direct contravention of their regulatory obligations?

    • Nicholas Pleasure 30th October 2017 at 2:48 pm

      Whilst I entirely agree with everything you write, regulated providers have just as much control and influence on the sale of this toxic junk as you and I do. That is, absolutely none.

      However, they do have much more political influence which I trust they will use to pressure the FCA to sort this out on the lines of your post.

      • It’s beyond sorting out, at least in respect of the damage already done. And yet, despite it charging us a fortune for its very lavish and financially irresponsible existence (e.g. £60,000 on a minor tweak to its logo, FFS, and £60m proposed to refurbish its new office in Stratford), the FCA doesn’t even have the decency to admit that it just looked the other way and let it happen.

  5. At the end of the day, the advice was given by an IFA.

    If the provider is required to monitor the IFA to ensure the advice is appropriate, will they get a share of the fees.

    I think not.

    • No, but they do benefit quite significantly from receiving larg sums of money to manage, from the adviser community, without liability for the advice, as you say… so pretty much buckshee!

  6. Now, where are my spare underpants and those two pencils I had earlier?………..

    Ah, yes, here they are!…

    Wibble!

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