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FSA agrees retail pool for FSCS claims

FSA Front 480

The FSA has decided to go ahead with proposals for providers to step in where advisers breach their annual Financial Services Compensation Scheme claims limit.

The regulator first consulted on its FSCS funding model review in July, which proposed a retail pool for Financial Conduct Authority firms which would be triggered if one class breached its annual claims limit. Under the original proposals, there would have been no cross-subsidy between Prudential Regulation Authority firms, such as banks and insurers, and FCA firms such as advisers and fund managers.

The FSA consulted again in January over how the retail pool would work, adding a new proposal that all providers would contribute to the retail pool where it is triggered by the failure of an adviser firm.

It has today confirmed it will proceed with the retail pool based on its second proposal.

Respondents to the January consultation argued the default position where a class breaches its annual claims limit should be to borrow money rather than levy the industry, and that pool contributions should be “clawed back” from the receiving classes in “non-distressed” years.

Concerns were also raised that one month was not a long enough consultation period given the second proposal was a significant departure from the first.

In response the FSA says: “We acknowledge the strength of feeling in the responses we received, but we were not persuaded the proposed model does not strike a reasonable balance between extending the funding capacity of the scheme while ensuring no sector is threatened by potentially unaffordable levies.”

It says providers’ maximum exposure to the FCA retail pool is “significantly less” than under existing rules.

The FSA argues there are also practical issues associated with borrowing or clawing back pool contributions.

On the issue of the consultation period, the FSA says: “We recognise the period was short, but we sought to engage key stakeholders in advance and a longer timescale would have jeopardised the legal certainty and operational readiness needed by 1 April.”

Under the new FSCS funding model investment advisers will have an annual claims limit of £150m, up from £100m under the previous system.


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