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FCA rules out product levy in FSCS funding review


A product-based levy has been ruled out as a potential funding model for the Financial Services Compensation Scheme, Money Marketing understands.

The FCA held its first roundtable meeting about the FSCS funding model last week after the Financial Advice Market Review kickstarted a review into the scheme.

The review is expected to consider the fairness of the current funding classes, the scale of impact on firms, and the impact on the scheme from sectors that do not currently contribute at all or enough.

While a product levy was deemed outside the scope of the review, because it would require a change in legislation, it is understood that risk-based and “smoothing mechanism” approaches were raised as two potential solutions.

The FCA is due to launch a public consultation later in the year.

Personal Finance Society chief executive Keith Richards says: “The advice sector has a huge role to play in shaping an improved and fairer funding mechanism, with the consultation allowing everyone to engage constructively bearing in mind that the FSCS was put in place to protect consumers and allow them to engage financial services with greater confidence.”

In April, FCA chairman John Griffith-Jones offered support to ‘polluter-pays’ funding model for the FSCS and revealed the regulator would explore giving firms a ‘no claims bonus’.

Also in April, trade body Apfa backed a product-based levy as well as a lower compensation cap, as a way to bring down the cost to advisers.

The FCA and FSCS declined to comment.



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

  1. Julian Stevens 31st May 2016 at 11:59 am

    Another triumph (not) for APFA. When was your last victory Chris?

    The biggest burden on the regulated adviser community is the FSCS taking on responsibility for all the losses suffered by people who were persuaded to invest via an unregulated intermediary, just because one single regulated intermediary may have sold one of the products in question. Why isn’t this the centrepiece of APFA’s campaign for reform?

  2. I thought that legislation could be changed with the click of one’s fingers these days, or is that when it suits the Treasury?

  3. Soren Lorenson 31st May 2016 at 2:57 pm

    This is actually quite simple to resolve. Regulated products are covered by the FSCS and have an FSCS badge on the cover. Regulated advice is also covered except where it recommends an unregulated product.

    If you are silly enough to buy an unregulated product you are not covered by the FSCS for the product or the advice. You are on your own – It’s unregulated; therefore why should the regulated pay for it??

    For once I would support one of those hugely expensive FSCS advertising campaigns to get across this message. Then maybe the ordinary clients of ordinary firms can stop being asked to underwrite the wild speculation of wealthy fools.

  4. “While a product levy was deemed outside the scope of the review, because it would require a change in legislation”
    And they wonder why people get exhausted and disillusioned by bureaucracy.
    Surely it is actually NOT beyond the remit of this “review” to take ALL options into account??….. on the basis that IF it concludes that an option requiring legislative change IS actually the best, then it can strongly recommend to the powers that be that legislation is required in pursuit of the best solution for consumers and industry participants alike.

  5. The “clue” for a product levy being “out of scope” was in the FMAR lightweight recommendation No 20

    I suspect that when that committee suggested the Funding Review “should specifically explore risk-based levies” it was already understood that a product levy was too hard (and too sensible) a solution.

    I don’t think anything substantial is going to change. We will still be debating this in five years time!

  6. @Paul. That explanation is clear as can be.

  7. Why would they look at this with anything other than a dismissive approach. They have a bottomless pit of money which can be increased to whatever they want as they see fit at no cost to themselves. I don’t see anything changing anytime soon.

  8. It is so frustrating watching these bureaucrats waste millions of pounds to get it so wrong. The product levy (an insurance premium) has to be the best way forward. It will be introduced eventually as no advisers will be left to pay as we all retire and no one can afford to get started. May be its more about non regulated products that will not be protected even if advised that is giving the regulator the headache, as currently we all have to keep paying for advised non regulated failings. This in their eyes is fair, but from my prospective as we do not recommend such products, it has been the highest cost of all.

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