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Hoban admits he can’t find answer on FSCS funding

Treasury financial secretary Mark Hoban says he has tried and failed to find a way of improving the Financial Services Compensation Scheme’s funding model.

Advisers paid £93m out of a total £326m interim industry FSCS levy in January 2011, mainly to cover the cost of claims relating to Keydata. The FSCS announced last week that investment intermediaries will have to fund a £60m interim levy, taking total compensation costs for the 2011/12 year to £82m.

Speaking last week at a meeting of the public bill committee, which is currently scrutinising the Financial Services Bill in Parliament, Hoban said the scheme is designed to limit the liabilities industry sectors face as a result of claims. He said the FSA is reviewing the FSCS’s funding model.

He said: “I have thought about it and failed, the FSA is struggling with it, as are industry groups because they recognise that the burden has to be shared.

“It is right that the FSA is doing that but the problem with all reviews is there is a cost of failure that needs to be apportioned across the industry, there will never be an entirely satisfactory outcome, because someone will always have to pick up the cost of failure.”

Hoban was responding to questions from Labour Shadow Treasury financial sec- retary Chris Leslie, who said that FSCS levies can account for as much as 10 per cent of an IFA’s annual turnover.

He said: “The levy is obviously not a tax on their work but it is a cost, a burden to some extent, that they have to factor into their running costs.”

Leslie asked Hoban to commit to improving the transparency on how compensation scheme levies are calculated.

Hoban said: “The challenge has been that it is difficult to predict the calls on the scheme because they depend on how many firms go bust and what liabilities a firm has.”

Investor Profile director Jaskarn Pawar says: “I doubt that Hoban wants to get into micro-managing every part of the financial services sector and, given the technicalities involved in this, I think the FSA should figure it out.”

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