The FSA has decided to go ahead with proposals for banks and insurers to step in and pay if the adviser sub-class breaches its annual Financial Services Compensation Scheme claims limit.
The regulator first consul-ted on its FSCS funding model review in July, which proposed a retail pool for FCA firms which will be triggered if one class breaches its annual claims limit. Under the original proposals, there would have been no cross-subsidy between PRA firms such as banks and insurers and FCA firms such as advisers and fund managers.
The FSA consulted again in January on how the retail pool will work, adding a new proposal that providers contribute to the pool where it is triggered by the failure of an adviser firm. It will proceed with the retail pool based on its second proposal.
Respondents in January argued that the default position, where a class breaches its annual claims limit, should be to borrow money rather than levy the industry and that contributions should be “clawed back” from the receiving classes in “non-distressed” years.