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FSA and FSCS send IFAs open letter on Keydata levy

The FSA and the Financial Services Compensation Scheme say firms can resubmit tariff data on which their FSCS levy is based, but poor original estimates are unlikely to lead to FSCS refunds.

However, the bodies say firms’ levies may be reviewed and refunds paid where there is found to a ’mistake of fact or law’ in the original data submitted by firms.

The FSA and the FSCS have published an open letter to the industry following requests to resubmit the tariff data firms submitted for the 2010/11 levy period.

Advisers have expressed concerns that they have been hit with huge increases in their FSCS levies due to the change in the way levy is calculated.

The FSCS confirmed to advisers in January that the interim adviser levy was calculated based on the amount of eligible income a firm generates rather than the number of registered individuals at a firm.

Firms can opt whether to class their eligible income as activities relating to the investment fund management class or investment intermediation sub-class.

Depending on a firm’s year-end, this data would relate to either business in the year to March 31 2009 or December 31 2009.

The FSA and FSCS say payment of FSCS levies was due on February 23 irrespective of any request to revise tariff data.

But it adds that firms can apply to amend their tariff data up to two years after the original data was submitted.

The letter says: “In so doing, firms must be able to satisfy the criteria included in the rules, which allow for the FSCS to agree to remit or refund a levy where in the exceptional circumstances of a specific case the FSCS considers that payment of the levy would be inequitable.

“A poor estimate by the levy payer, when providing the tariff data, is unlikely, of itself, to amount to an exceptional circumstance. By contrast, a mistake of fact or law may give rise to such a claim.”

The FSA and the FSCS say it will take time to go through all the submitted requests before any decision on refunds can be made.

The bodies will plan to handle all resubmission requests received by March 31, 2011.

The FSA notes this date is for administrative purposes and not an extension of time to resubmit data.

If firms decide to resubmit their tariff data then they should contact the FSA who will receive the resubmission on behalf of the FSCS.

The resubmission must be in a letter from the firm’s chief executive officer (or equivalent) and provide:

  • an explanation why the firm wishes to resubmit its tariff data;
  • an explanation how any error in the previous data occurred/why the data was incorrect;
  • what the revised data now amounts to; and
  • an assurance that systems and controls are in place to ensure data will be reported correctly and consistently in future.

Firms should also include any other relevant information.

The letter says: “Working with the FSA, the FSCS will consider and make a decision on each case. If a request to resubmit data is approved, the firm’s share of the levy will be recalculated and a credit note or additional invoice issued.

“Where the firm has a credit balance a refund may be made, or the amount set against future levies.”

Aifa policy director Andrew Strange says: “Having identified a change in the underlying tariff data that determines the allocation of the FSCS levy, we are pleased that FSA and FSCS have responded to our concerns with an open letter to the industry.

“When we spoke to individual members it was clear that allocating income between ‘investment’ and ‘life and pensions’ classes is complex and as such we sought clarification from FSA and FSCS over what action firms should take.
“Anyone who believes the data they submitted may be incorrect should review the open letter and contact FSA accordingly.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. The system is wrong so until they address the real issue I doubt this letter will be much help, though it gives some positive hope.

    We do really need the whole issue of how consumers are protected and compensated reviewed, not just tweaking the existing system and this has to go hand in had with a regulation review

    Sadly I see little being done in either case, just more of the same but with bigger things to hit you with.

    The consumer is in my view going to pay a very high price for this form of protection.

  2. Steven Farrall (Adviser Alliance) 25th February 2011 at 5:25 pm

    They just do not get it do they?

    I have read this letter and my comments are:-

    Para 1. Fine, and so what?
    Para 2. Lie No 1. By removing all responsibility from investors they create massive moral hazard, which is the the very core of all our financial problems.
    Para 3 to the end. Pointless bureaucracy (see my point 2 above)
    Annexes. More pointless bureaucracy.

    The whole thing is utterly stupid.

    And I repeat again, we do not pay these levies, our clients do. Economies consist of people and things, companies and governments are just convenient admin fictions by which we try to better organise our lives.

    All the FSCS levies and FSA fees are priced into our client charges. It’s all passed on to the client in one way or another. IFA’s know this. We are not protesting for ourselves but for our clients in this mad merry go round.

  3. Let’s face it both the FSA and the FSCS are a bunch of tossers.

  4. The FSA are on the defensive. Fact 1. The FSA has misadvised firms as to what should be included in the return. We have evidence and a simple trawl of IFAs will produce more evidence I am sure. Fact 2. The issue of VAT and intermediation is contradictory. Why should a fee including VAT for non intermediary services be included in the FSCS sub classes for intermediary service? Fact 3. The FSA cannot distinguish between fee income for advice and for product. Nor for that matter can we. Fact 4. Not all firms are returning data and in any case it is inaccurate (see Fact 1.) Therefore many firms are being overcharged. Also, many non regulated financial advicers give the same service as we do and pay nothing into the levy.

    Basically the outdated FSA are still wedded to the idea of product, penalise RDR ready firms, issue invoices in a random nature (which we would be crucified for under TCF) simply to ensure that they get their grubby hand on money now.

    Advice to all IFAs. Take commission from WOL, pensions, GI and Bonds, mortgages and unregulated products (i.e. not investments) and you will never have to pay for failures like Keydate. If all our fees are worded that this advice is predominantly in respect of retirement and protection we pay nothing. Also appeal your invoice.

    The levy is out of date NOW. It needs reforming NOW. Hector Sants response to Martin Bamford was totally unacceptable. The levy fails all the tests of fairness, decency and equality and in my view is illegal. The FSA are trying to fit their need for money around a bust model. Good God. They are unreal. The product model is bust. Is there no way we can legally challenge this?

    A final thought, if guidance is being given now, why the hell was it not given earlier so that all the fee data could be collected accuartely and fairly? Is this not an admission that the method of recording data has been wrong?

    Yes this has been posted else where but it sums up everything that is wrong with the FSCS levy and the FSAs lask of understanding as to how IFAs work. Frightening isn’t it? (We should include the VAT we charge on fees in our return. Put another way, our FSCS levy is based on income 20% higher than we actually receive! Yes, the FSA said that!)

  5. Collective life and pension contracts aren’t investments in the rest of the EU. They should not be described as such in the UK either.

    This is indeed a case of mistake of fact brought about a fault in law.

    When firms ask the FSA for assistance in completing all the ever more complex returns they are told to interpret the rules themselves. There is a distinct imbalance in knowledge between the regulators and the regulated, of course I am assuming that the regulators themselves can interpret the rules and regulations they themselves create – I must admit that I have my doubts.

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