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FCA sets out thinking on FSCS funding review

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The FCA is considering a bigger role for providers and the introduction of a product levy as part of its review of how the Financial Services Compensation Scheme is funded.

In a letter to Treasury committee chairman Andrew Tyrie, published yesterday, FCA chief executive Andrew Bailey says work on the FSCS funding review is “well underway”. Bailey says the FCA expects to publish a consultation on FSCS funding at the end of November, with new rules coming into effect for 2018/19.

Bailey says the regulator is looking at a number of measures to the make the FSCS more sustainable.

These include smoothing firms’ levies by merging funding classes, or better use of the FSCS loan facility. The FCA says as part of this it is considering the responsibilities of providers for the way their products are distributed.

The FCA is also considering introducing protection for consumer credit activities, and changing FSCS compensation limits. Bailey says this may involve increasing compensation limits in certain areas, such as those who are drawing down their pensions “outside of traditional life insurance products”.

Risk-based levies related to products or services, capital reserves or the number of complaints are also under consideration, as is the industry-wide calls to bring in a product levy.

Bailey says the FCA is also examining the relationship between FSCS funding the professional indemnity insurance market, and whether a separate review is needed of PI cover.

Bailey says: “In undertaking this review, it remains the FCA’s goal that the FSCS is well-funded and sustainable, and that it supports confidence in financial firms and provides appropriate protections for consumers.

“To this end, we are working with the FSCS, Prudential Regulation Authority and the Treasury to examine whether there are practical ways to enhance the current funding model by improving affordability for firms without reducing consumer protections.”

In response to the letter, Tyrie says: “There has been talk of reviewing the FSCS levy since 2001, so this is not before time.

“I’m glad that the funding review is well underway, and that the scope of the review includes issues raised by the committee, such as the unpredictable nature of the levy.

“It is likely this will be raised when the committee sees Bailey next month.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. I think it is great that this is being reviewed and high-time, but one query- everyone wants a product levy- but won’t that mean that advisors will be inclined to stick within basic product ranges and consumers may lose out on products that could be more suitable for them? The current industry already drives as many poor behaviours as it does good?

  2. Equitable funding !

    We all pay our fair share advisers, firms, providers, banks etc etc etc and ditch the need for PI, lets face it, PI insurers don’t want this kind of business anyway (from the conversations/ and reports I have had with PI insurers) and will do their best to not pay out.

    But we do need better correlation between the FCA, FOS and the FSCS, every-one has to file their RMAR returns twice a year and they use this to set fees anyway so what the problem with extending this to the claims history prevalent at the time ?

  3. Strange reply Jane!?

  4. Well – at long last some real open minded thinking from the regulator. How very refreshing. It is by no means a done deal, but at least they are willing to consider a product levy.
    It rather makes Mark Neale’s obstinacy on the matter look foolish. I have lost count of the number of events I have attended where he has flatly ruled out a levy.
    Jane – One can still provide advice without using a product, but you need to bear in mind that all compensation has revolved around products – so a levy is therefore appropriate from this standpoint.

  5. Nicholas Pleasure 31st October 2016 at 10:41 am

    A product levy will also have the advantage that it will be clear that no levy means no cover. Therefore unregulated products and the advice on them should be outside of the scope of the FSCS. I can’t see how anyone could justify why an investor into a managed fund ISA should pay a levy so that a speculative investor in an overseas property scheme can be paid out.

  6. One can but hope that the idea of a product levy is properly considered. It provides clarity-You pay the levy and you’re covered by FSCS, you don’t pay the levy and you’re not. It provides fairness-investing in a vanilla ISA does not mean you’re subsidising some esoteric investments.
    I have yet to see why it was not considered other than it would require legislation. Mr Neales apparent dismissal of a levy out of hand is strange to say the least.

  7. I would have no problem with this. The advisers / providers will then have to be really sure of themselves before they recommend / arrange / facilitate a product that is except from the levy and therefore outside FSCS protection. I would then expect the FCA to collect, via GABRIEL and providers, details of all transactions of this type of work and put it on the FCA radar at an earlier stage. I also think there should be a new FCA permission for an “authorised” adviser to recommend / arrange /transact work that is not covered by the FSCS levy. All this makes some types of work more unpalatable for most, but still possible for those (few) who wish to engage with the FCA in advance and discuss their business aims ahead of time. It wouldn’t affect most normal clients as they would simply be given recommendations from a normal pool of FSCS covered products. The few specialist advisers who wish to go off piste can pay for the privilege.

  8. Yet we see/hear from Mr Bailey no talk of the FCA starting to do its job properly so as to reduce the incidences of firms defaulting on their liabilities as a result of having sold ultra-high risk junk that they didn’t properly understand and for which they didn’t have adequate PII cover.

    And, for all the reasons I’ve already set out elsewhere, product levies won’t work either.

  9. I suspect that “considering a product levy” is regulatory code for “too hard to do” l do hope I am wrong but wasn’t it previously claimed that this would take primary legislation?

  10. Nick

    So it would take primary legislation. Perhaps a more worthwhile use of Parliamentary time than debating whether someone should or should not loose a knighthood.

  11. I think Julian’s point about firms going into default and thus evading liability is extremely valid. I have seen no evidence that FSCS carries out thorough investigations into asset transfers etc before allowing a ‘default’ position to exist. I think it should carry out a cold case or ‘past business’ review of its own activities as it is well known that the FSCS has become a dumping ground for errant firms.

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