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FCA weighs ‘no claims bonus’ for FSCS levy

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FCA chairman John Griffith-Jones has backed a “polluter pays” funding model for the FSCS and revealed the regulator will explore offering firms a ‘no claims bonus’.

At a media briefing earlier today Griffith-Jones listed alternatives to how the scheme is currently funded – through an annual levy based on different classes of business – including a pre-funding model or having fewer funding “buckets” across broader categories.

He said advice firms have suggested a model that gives a discount for good behaviour if their business has never had a claim.

Griffith-Jones said: “It is a perfectly sensible, plausible question. The issue is who is going to administer it. The FSCS would have to be a much bigger organisation – or someone would have to decide who gets a no claims bonus.”

He stressed the FCA has no preconceived ideas about what funding model would be best for the FSCS.

He said: “The polluter pays argument is a pretty good one. How you would do it – if we thought it had merit – then you would have to go from concept to reality. There is a lot of reality to be worked through for that to be done but I cannot deny it is a plausible solution.”

The funding review was confirmed in the Financial Advice Market Review in March. The most recent FSCS funding review was conducted in 2012 but Griffith-Jones says that investigation was carried out in a different environment.

He said: “[In 2012] all of the focus was on what happens if another bank goes bust and protecting advisers from another bank getting into difficulty.”



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There are 16 comments at the moment, we would love to hear your opinion too.

  1. The issue here is that “polluters” are often out of business and that is why the FSCS is paying compensation in the first place. If the offending business was still operating they would be liable for any compensation rather than the FSCS.

  2. Lindsay Lockett 27th April 2016 at 4:04 pm

    We don’t need fewer funding “buckets” across broader categories we need more buckets. The FCA / FSCS should know all the product areas types that a firm wishes to advise on (and therefore if the firm is WOM or restricted). Where appropriate some areas might need FCA permission in advance. Then when the RMAR is complete we fill in which areas we have actually needed to advise on from our agreed list and our FSCS fees are based on this activity. It goes without saying that the more risky areas carry a premium. That way the polluter would have paid their fair share in advance or they might even be put off that activity in advance due to the earlier FCA involvement or cost. Lets get ahead of the problem instead of chasing it !

  3. Trevor Harrington 27th April 2016 at 4:07 pm

    At last – common sense – I have been advocating this for over 20 years !

    The FCA already has feed back on complaints received from each and every Adviser through the RMAR – surely they can work from those figures.

  4. Am I being thick here? Surely a claim would only occur after a firm has gone bust? So all firms that hadn’t gone bust would have full no claims bonus?

  5. How about the FCA doing vastly more to prevent or at least reduce substantially the volume of investor losses that the FSCS takes on in the first place? Like ensuring that firms flogging UCIS and other high risk stuff have in place appropriate PII cover and proper DD processes to prove that they actually understand what they’re flogging? Like redesigning the RMA Returns to ask the right questions and then actually looking at the answers? It’s like banging our heads against a brick wall.

  6. The logical conclusion would be that if one didn’t “pollute” that all that one had to pay would be the admin costs. Anything other than this would point yet again to the explicit fairness of a product levy. Some would pay to be protected by the FSCS and some would elect not to by merit of the investments they chose.

  7. I can understand there will be some difficulties in administering the no claim bonus idea but I totally disagree that the FSCS would have to be a much larger organisation. A bit of coherent and joined up thinking about how the FOS (who have stats on every single firm who has a complaint against them) and the FSCS would make it easier. Couple this with the FCA actually using the data on the RAMR for good purpose, it would provide all relevant information to design a no claims discount type scheme. It would certainly not require huge expansion of the FSCS (this is such Quango-ite thing to say). Between them they have a monstrous amount of data form all firms (FCA), the naughty firms (FOS) to be able to help the FSCS come up with a good, workable, sensible and equitable funding strategy. They could even involve a general insurance company or 3 – they know all about no claims discounts. That may be a tad novel.

    Some system along the lines of:
    Every Firm (or firms within a category) pays a certain contribution towards the FSCS (call this a firm or category’s baseline and the fee could be baseline fee or whatever you like. Info from FCA & FOS to the FSCS (or Insurance Co) on the number of upheld complaints per firm (or firms within a category) each year would be available. Based upon how much worse than the baseline the firm (or firm within a category) has been, the higher the uplift on the baseline fee you pay, for example 30 times the baseline fee. By definition those not above the baseline need pay no more than the baseline fee. Those who are not in either of the aforementioned groups are, by definition, those who have played by the rules, have done good jobs for their clients and should rightly receive a dividend
    It would be the last firms (or firms within a category) who get the big discounts off their following year’s bills based upon whatever the balance of the FSAS bill is. For example they get a 60% or 30% or whatever off the baseline fee for the following year.
    This may be a simplistic idea but I would bet good money than an actuary somewhere could design something along these lines that could work in a simple, effective and fair manner. We all know that those who do the riskiest business get the most complaints and are responsible for the largest payouts of the FSCS. Rightly they should pay the lions share of the resulting bill.
    Just a thought..

  8. It’s been a long day and the little grey cells are tired, but I’m not quite with this. I like the “polluter pays” principle, but in this case in the event of a claim on the FSCS, surely the “polluter” no longer exists? Which, turning it round means that all those still running are not polluters and entitled to an NCD (until of course they trip over and become a polluter – and insolvent -whether by design or accident). Don’t see how that drives anything forward….. What aspect have I so miserably misunderstood (and that’s very possible I must say!) – or is there more info to this story than the article outlines perhaps?

  9. paolo standerwick 27th April 2016 at 6:50 pm

    HELLO FCA…….. are you listening, product levy is the way forward!

  10. jonathan gamlin 27th April 2016 at 7:52 pm

    I’m afraid as already said we are closing the stable door after the horse has bolted !! The next UCIS or Sipp transfer fiasco is already in the system waiting for a catastrophe to happen . More buckets is the answer , if you sell UCIS , diversified Sipp ,pension transfers , VCT and EIS you should pay more to the FSCS . If like the majority you are mainstream platform OEIC sellers you pay less ! Risk has to carry a premium , if you have points on your license you pay more for your car insurance for a period of time , so apply the same system to product peddlers !

  11. The polluter pays is a, bucket full of holes;

    As previously mentioned, the polluter has in most instances ran away !
    How is this going to be monitored…….. complaints data ? up held complaints ? and who determines good behavior ?

    On saying this, from the FCA’s point its a good start they have the data but also need to look at the risk levy, based on what a company risk has to the industry IE -: look at the RMAR data to determine what products they are advising on ! coupled with a product levy.

    As with most things the FCA has left this way to late, we have been funding huge increases in levies for years now, and being optimistic, even if they do change things it wont be for some years to come, and then after thematic reviews, consultation periods, just one more cup of tea etc etc etc…….. best not to hold your breath as we will all be old, grey and a worrying color of blue and be able to play Papa Smurf at our great grand children s school plays.

    Strap yourselves in, the next 5 years are going to be expensive…. you have been warned !

  12. Trevor Harrington 28th April 2016 at 9:17 am

    Now we are getting way too complicated.

    Making all investors pay for the malpractice of the Adviser profession, across the board, just because they have invested in a product (eg a product levy) is totally unfair, it increases expenses across the board, and it does absolutely nothing to deter the wrong doers in our profession. A product levy is unjustifiable and unsustainable.

    The fact that a company has already gone bust is also a complete irrelevance. What we are trying to deal with is the bad practice of those companies that remain.

    What we should be looking at is those companies who receive the complaints in the first place. They should pay the FSCS fees, and in my opinion they should also pay the largest part of ALL regulatory fees including FCA. These companies should be paying the regulatory fees in direct proportion to the number of complaints they have received in the previous year. FCA already receive the figures concerning “complaints received during the preceding year” through RMAR.

    If that tips some of those companies “over the edge”, and sends them bust …. so be it.

    This would be self regulation at it’s purest and best, and it would produce a considerable deterrent to future poor practices.

    • Morning Trevor
      I take it when you say complaints these are “upheld” complaints from FOS ?

      If you take complaints of the RMAR you can bet you bottom dollar every-one will put in a nil return !

      Lets face it if one is a polluter, is he (or she) going to be honest on their RMAR,s ? uummm ? I think not.

  13. As has been said (which is frightening if the FCA doesn’t understand this) the polluter is not in business which is why the FSCS pays.

    Somehow the industry needs to change so that the protected pays for his own insurance. This should and could include FOS costs, FSCS and regulator to some extent. In theory he ‘is’ in that advisory fees etc need to reflect the inevitably of such schemes/protections but better if the customer recognized the levy and its cost for the protections he enjoys. So yes, some form of product levy (which would include bank and building society accounts too) would be preferred.

  14. Trevor Harrington 28th April 2016 at 10:43 pm

    Evening Philip – as I have already said above, a product levy is indiscriminate, has no justification or logic in the regulators eyes (nor mine for that matter), it simply increases product costs, and above all else it has absolutely no deterrent factor on miscreant Advisers (read Banks).

    Evening DH – absolutely nothing to do with upheld complaints, or indeed any other figures from FOS. I would suggest that if we are going to find it so easy to lie on the RMAR, en mass, then our profession is doomed.
    However, taking your general point more seriously, about the declared numbers of complaints perhaps being fictitious on the RMAR, then I would point out that we are talking really large numbers Vs very small numbers of complaints.
    In other words, an Adviser with a ten or fifteen complaints (which actually is quite a lot for an Adviser) is not going to go to the trouble and risk of falsifying them because his resultant regulatory levy will be tiny anyway, Certainly it will be small compared to the Banks who typically have hundreds or even thousands of such complaints every year, which they cannot hide because there are so many of them.
    I think the numbers of complaints declared through RMAR is perfectly adequate to calculate proportionate payment of regulatory fees, and FSCS levies. It will be proportionate against those who create vast numbers of complaints, and a deterrent against them continuing with the same poor practices.
    If that stuffs up a few Banks and networks along the way, who obviously have very poor quality control, then so much the better.

  15. Hi Trevor, I do see your logic,

    “It will be proportionate against those who create vast numbers of complaints, and a deterrent against them continuing with the same poor practices”.

    Could I suggest… it would be deterrent against them continuing. “full stop”

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