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FSCS set to hit pensions advisers with interim levy on Sipp misselling claims


The Financial Services Compensation Scheme has warned that it may need to place an interim levy on life and pensions advisers next year.

In the lifeboat fund’s half year outlook this morning, the FSCS revealed that a continued surge in Sipp claims from advisers moving pension funds into risky assets like Caribbean holiday resorts, storage pods and plantations of oil producing trees in Asia had been “under-estimated” by the scheme.

The FSCS said that it had received claims against 171 firms. Just four firms were responsible for 73 per cent of compensation, which in total is set to come in at just over £136m plus administrative costs of £7m in the 2016/17 financial year.

The  possibility of an interim levy next year follows a £20m interim levy for life and pensions advisers last year over Sipp misselling claims.

FSCS chief executive Mark Neale says: “The full dimensions of known issues are not always easy to foresee. This is exactly the position we face with what we call Sipp-related claims.

“Of course, this is not a new issue. FSCS has been compensating investors for losses arising from these Sipp-related claims since 2014. We raised a supplementary levy on life and pensions advisers in 2015 and fully expected claims to rise again this year.”

“We under-estimated, though, the velocity of this growth. We have now received claims against 171 advisory firms and currently estimate that we shall face a deficit by year-end of about £28m.

“If that estimate is borne out by claims volumes in the remainder of 2016, we will have to raise a supplementary levy again. And because life and pensions advisers have already paid a levy of £90m this year against an annual limit of £100m, there is the possibility that a supplementary levy will trigger a cross-subsidy.”

The FSCS’ forecast for life and pensions advisers

Investment advisers, however, are due to receive a rebate on their FSCS bills, as claims have come in under expectations.

Neale says: “Claims against investment advisers have been significantly lower than we forecast and so we expect a surplus in this class this year of around £60m. We plan to apply this as a credit to firms in the class, either against next year’s levy or to offset any supplementary levy costs, or both.”

Investment advisers were hit by an interim levy in 2014 however on the back of the failures of life settlement firm Catalyst and stockbroker Fyshe Horton Finney, as well as increased compensation costs for Arch cru.



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There are 18 comments at the moment, we would love to hear your opinion too.

  1. Says the Statutory Code of Practice For Regulators:-

    Our expectation is that as regulators integrate the Code’s standards into their regulatory
    culture and processes, they will become more efficient and effective in their work. They will
    be able to use their resources in a way that gets the most value out of the effort that they
    make, whilst delivering significant benefits to low risk and compliant businesses through
    better-focused inspection activity, increased use of advice for businesses, and lower
    compliance costs.

    I think we can all agree that the FSA has failed dismally on every single one of those expectations. And who pays? Us. Who will be held to account? Nobody.

  2. so true Julian. it is a bloody disgrace. FCA = failed competence always. useless.

  3. Can we please have jail terms under no uncertain terms or the rogues doing this. We all know it’s not right and we all know the ones that do the right thing in this industry pay for the rogues who make small fortunes from their wrong doing!

  4. I often wonder if the FSCS would continue in its current form if it was centrally funded by HMG.

  5. I cannot be bothered to type my usual response. Why bother, we all know what should have been done years ago. So, the current review on FSCS funding has been extended and not likely to take effect until 2019, which actually means more like 2021. In the mean time my clients and I have to pay for these fraudsters.

    I wonder, if someone could put this to the Houses of Parliament as follows would the penny drop:-

    Ladies and Gentlemen would you be happy to pay for another’s parties fraud or theft, would you be prepared to give funds from your own pockets to pay for others wrong doing. Let us take this a stage further, how would you feel if you were made to pay, if you did not pay you would be dismissed from the party and never allowed to work again, this we know would not and could not happen today in the UK. We know we cannot make Ford pay for VW dishonesty, this we believe makes perfect sense, it would be unfair and may I suggest illegal to rob Ford, when they have not committed a wrong.

    If these losses for fraud or poor practice were chargeable to the tax payer, we all know the regulator would become far more effective in preventing them. There would be a far greater urgency placed on resolving this issue. The fact they can just demand money to suit their needs, with no thought that this could have easily been prevented by the regulator, would see Parliament enraged beyond belief and heads rolling.

  6. WishIwasinspainwiththeothers 1st December 2016 at 1:34 pm

    Fantastic – so once again, those advisers that do the job properly get to pick up the cost of those that don’t. Those that sell stuff that is too good to be true to people, take the money and run when it goes wrong – get to keep the fruits of their actions, while the rest of us pay out. What a fantastic system we have. Nice to see the regulator asleep at the wheel again! What they should do is start to regulate what we charge, so we can’t afford to chip in when the rouges have p*ssed off – then we won’t have anyone to bail anyone out. Oh wait – the taxpayer can do that like they did with the banks when the regulator was out to lunch with likes of Fred Goodwin!

  7. The Financial Services Compensation Scheme has warned that it may need to place an interim levy on life and pensions advisers next year.
    Mr Mark Neale, what do Protection Adviser have to do with SIPP miss-selling?
    This is scandalous and in your eyes legalised theft, shame on you!

  8. As has been written so many times before – the products should be regulated at outset by the FCA and carry their own PII.

    When VW failed the bloke at the local dealership didn’t weep at the cost of having to put matters right.

    Why does the FCA allow the concept of something being unregulated – grow a pair for Christ’s sake!

  9. As I said on MM wired recently ALL investments have to be regulated its not good enough to have regulators place items on the TOO DIFFICULT pile.
    Any adviser using unregulated products should be deauthorised asap

  10. Simle solution: The only language these people recognise is direct action and passive resistance. So don’t pay the levy. If enough don’t, then something will be done. I am old enough to remember when the FSA 1986 came into being. We were advised at the time that the whole purpose of the (then new) regulation was to limit the claims of the then various statutory compensation schemes (now subsumed into the FSCS). In other words measure the effectiveness of regulation by the claims on the compensation scheme. By that measure alone, all the regulators going from the present Financial Cock-Up Authority right back to FIMBRA/LAUTRO have failed (and are failing).

    The problem is that the small independent sector (unlike the banks, SJP et al) has no political power – so we are treated like we are. The time has come to show the regulators that we cannot continue to pay for the regulators mistakes. As far as I am concerned the FSCS can go bust.

    • Too much at stake to be struck off and they know it and rest assured, would deregulate a firm in a heartbeat for something like that. I would sooner help to fund a legal hearing into the legitimacy of ‘forcing’ other regulated firms to pay for wrongdoing where the sales of unlicensed/unregulated products are the cause. This is amounting to over £100 million a year in claims alone for Gods sake! Enough already, it’s easy to sort so let’s have some legal pressure if it can’t be done through common sense and diligent regulation! There are rules which govern restrictive practice and I would consider this arrangement to be just that!

  11. Agreed to all. Looking forward to the return of levy when all this is declared as illegally funding fraud and corruption. Oh, there goes a pig across the horizon. Joining Liberatum today. We have to stop this madness. No other profession has the mess we have.

  12. Plus ca change….
    As many of us have argued FOR YEARS, a product and/or advice levy at the point of delivery or implementation, is the solution that is both fair AND would actually create a big enough fund to cope with failures.
    But, even better is to STOP (or at least dramatically reduce) the problems being created in the first place; given that the pattern is so repetitive and ultimately therefore predictable, its beyond me that so little progress appears to have been made after so many years of regulation. Where are the creative solutions to stop this happening year after year? Where is the desire to fix it urgently?!?
    What about making “the provision of regulated advice on unregulated investments” a separate stand-alone regulatory permission – which would require not only special (ie robust) “underwriting” of the individual/firm and their processes by the Regulator, but also the placement by the firm of a substantial financial “bond” with the FCA to cover any claims post trading. Held for a period of 5 years post cessation
    That would surely at least massively reduce the problem, maybe even down to only those who then “advise” clients fraudulently/illegally??…which is then surely one for the Police rather than the Regulator and advisory community to fix??

    • Makes sense to me Paul.

      Anyone picked up the fact they said “Just four firms were responsible for 73 per cent of compensation”
      Name and shame please MM, plus lets see the Gabriel reports published for those 4 firms and see why this wasn’t picked up as a potential problem by the FCA and hear it from the team who should off giving evidence in public before we pat a penny and lets hear who the PI insurers were and why there underwriting didn’t pick it up.
      As I have said before, lets write our FCA fee cheque seperately from our FSCS interim levy and make the payment contingent of evidence that they have tried to obtain it from the guilty parties and not just gone for the easy touch.

  13. Some of the seasoned, unregulated product sales outfits have not only passed their clients’ losses on to the FSCS by ceasing to trade, but have also struck up fee-share agreement with the claims companies. They are therefore being rewarded by going back to their original clients, explaining that their loss will be recovered and steering them to these claims companies. Nice eh?

  14. I read this stuff and just want to lie down in a darkened room. Who in the FCA is held accountable when these firms cause such financial damage that the rest of us have to pick up the bill? This has happened far too often as proves the system is dysfunctional to the point of no longer being sustainable.

  15. Oh Joy !! Yet more levies to bail out the suckers who put their trust in unregulated advisers selling dodgy investments which any well educated adviser would avoid like the plague !
    In the early days of full SSIPs I duly avoided these as I noted that unless they were used extensively by actively trading clients they were poor value for money.
    Why do we continue to have to carry the can for the crooks in our industry and why does the FOS believe that these claims are eligible for any compensation at all – the FCA and FOS should unite and make it very clear to all concerned that if you don’t deal with an authorised
    professional if things go wrong, your on your own!
    The current system is unfair and unjust to the bulk of honest and hardworking advisers and duly needs a major overall before we are an extinct species.

    • I too believed for many years that it takes only one regulated adviser firm to have sold a product or investment that’s gone down the pan for everyone and anyone to be able to claim on the FSCS, including those who’ve invested via an unregulated firm. But I have it on good authority that this isn’t in fact so. Those who invest via an unregulated firm have NO recourse to the FSCS.

      The idea of product levies has been aired many times but is unworkable for a number of reasons, amongst them:-

      1. Unregulated providers cannot be made to collect and pay over a levy because, by definition, they’re answerable to no regulatory body. Any demands for a levy would go straight to the shredder.

      2. The purpose of the FSCS is to compensate investors for losses incurred as a consequence of bad advice, not for product failures. A product which is unsuitable for one type of investor might be quite suitable for another.

      3. Any system of product levies would have to be tiered according to perceived risk and, apart from the question of which body would decide on which products are allocated to which levy band (the FCA? I hardly think so, not least because it would constitute a step towards product approval and risk grading, from which the FCA has always steered well clear), arguments would rage endlessly as to the justification for allocating a particular product to a particular levy band. So there’d have to be some sort of appeals system and which body would oversee that? To be perceived as impartial, the appeals body would have to be independent from the body deciding which product should be allocated to which levy band so, before you know it, the whole process would become hopelessly bureaucratic and costly.

      In my view, the only way forward is an adviser firm levy system, tiered according not just to current business mix but to historic business mix. But that too will be hugely bureaucratic because somebody would need to analyse each and every firm’s submission and decide on the levy band to which they should be allocated.

      So where does that leave us? A more practical GABRIEL returns system (the present one is about as much use as a chocolate teapot) and the regulator actually looking at what they contain or at least a system that will automatically flag up any potentially high risk classes of business. Needless to say, the regulator would be under a statutory obligation to investigate high risk activities and stiff penalties would apply for false declarations.

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