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Hoban: I’ve tried and failed to think of better FSCS funding

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

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 this week that investment intermediaries would have to fund a £60m interim levy, taking total compensation costs for the 2011/12 year to £82m.

Speaking at a meeting of the public bill committee currently scrutinising the Financial Services Bill in Parliament yesterday, Hoban said the scheme is designed to limit the liabilities industry sectors face as a result of claims and that the FSA is looking at a way of redistributing the burden.

He said: “I have thought about it and failed, the FSA is struggling with it, as are industry groups because they recognise 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 his Shadow minister Labour MP Chris Leslie who said 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 of how levies are calculated because a failure in one sector sub-class can lead to other sectors incurring levies without understanding why.

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.”

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Comments

There are 26 comments at the moment, we would love to hear your opinion too.

  1. Incompetent Regulators Award Team 16th March 2012 at 3:36 pm

    Lets face it, he’s not capable of anything………….

  2. “there will never be an entirely satisfactory outcome, because someone will always have to pick up the cost of failure.”
    Unless they work at canary wharf.

  3. Perhaps he should try listening to the industry for a change!!!

  4. “tried and failed”

    Sums Hoban up really

  5. What exams do I have to pass to become an MP?……..Why non of course! We have unqualified disasters in charge.

  6. The trouble with the FSCS is the “polluter” doesn’t pay, the non-polluter does.

    What would the impact of introducing an FSCS product levy, payable by the customer by deduction or a fee, have …. if he’s thought of everything this must have been considered, so what was wrong with it ?

    Same applies to FOS costs…

  7. I can help here..

    IFA’s pay for failed IFA’s only. They don’t pay for structured product providers, stockbrokers, US fund managers and fund managers.

    Easy really.

    Holbum is a total muppet really

  8. I imagine this man would try and fail to work out how to put his trousers on.

  9. @ Soren Lorenson

    Not sure whose point you’re answering.

    If mine a product levy applies across all channels and products… given FSCS is categorised across market segments and distributors/providers/managers etc

    Easy really.

  10. Tried and failed? Then bog off and make way for someone with half a brain to step in to the breech. If we cant do our jobs properly we are out of business. Same should apply to this clown.

  11. “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.”

    That comment alone shows how misguided and ignorant they really are. They obviously have never had to run any kind of business in their lives. Where do they find these people and is this the best that the UK has to offer in talent?

    I really do dispare for our futures if that is the case.

  12. I take my hat off to Mr Hoban. It’s not often that any minister admits to being that stupid.

  13. Your bonus would help for a start Mr Hoban!!

  14. Yes IFAs pay only for IFAs but first of all IFAs set up and run a professional body which can through its own oversight and disciplinary procedures exclude rogues

  15. a “failed” politician!

  16. a product levy across all regulated contracts just like insurance premium tax,, daaaarrr ! this man works in government ffs.

  17. Here’s an idea Mr. Hoban.
    Take the funding for the FSCS AND the FOS away from the industry and make it a Government responsibility.
    Let’s face it, the taxpayer pays anyway through increased costs and charges from his IFA, Bank, product provider, insurance company, etc., who all have to factor these FSCS & FOS levies into their business plan and pass the costs on to the consumer/client – in other words, the taxpayer.
    Result – MUCH closer scrutiny as to how the FSCS works, it’s costs and charges, and it’s decisions. When the FSCS decides arbitrarily to compensate for a percieved loss WITHOUT CONSULTATION, when the FOS decides to punish, through compensation and costs, an innocent practitioner who believed that he was following the rules of an unaccountable regulator, but the easy option is to find for the client (instead of prosecuting the client, in some cases, for attempted fraud),knowing that the practitioner has no redress or right of legal representation or defence, I think you may find that MPs, the Government and particularly the Treasury are going to get VERY interested.
    We have slashed our military spending to the bare bone at a time when we should be investing (and supporting them), we have slashed expenditure to a similar degree on Social Services, on public expenditure, and on every other aspect of community support from central Government. It is obscene that the only sector spending MORE of people’s money and demanding more income to support itself is in an industry supports the social strata being starved of resources!
    Rant over.
    It’s probably a radical idea, but I think it would work.
    Roll on retirement!

  18. To use an expression from the film “Hot Shots,” what a weaner!

  19. I think most of us have two principal issues with FSCS funding;

    1) Incorrect and inapropriate allocation of compensation costs – e.g. Keydata – obvious to all of us that it was a provider, not an internediary.

    2) FSA incompetence, ignorance and lack of awareness of the potential implications of allowing obscure complicated and esoteric products to be marketed to the general public.

    As others have said, product providers should be responsible for compensating clients of failed providers, and IFAs for IFAs etc, BUT –

    If duff and suspect products were restricted or not allowed on to the retail market, the bills over the last few years would have been considerably lower.

    And how FSCS manages to classify a US based hedge fund outfit as an internediary defies all logic and common sense.

    If these issues were properly addressed and managed, our sector would be left with funding compensation for clients of the very few dishonest IFAs who come out of the woodwork from time to time, at considerably reduced cost compared to as it is now..

  20. Well he is only an accountant after all.

    What he needs to do is think about why we need a ‘fund of last resort’ in the first place.

  21. They could just set aside all the fines that the FSA levies and use them or

    Stockbrokers pay for stockbrokers, banks for banks, IFA’s for IFA’s, Insurance Companies for Insurance Co’s , Investment houses for Investment Houses etc etc.

    Would mean theat the FCA would have to get the definition of each one correct.

  22. @greg Heath. You must remember where we get these idiots from. They don’t have examinations in their field rather they ate bully boys / girls who think they are something. They shout the loudest at party meetings, stab other contenders in the back and get put forward by their parties. The public blindly elect them regardless of their performance but in gangs of Lab / Con / Lib etc. then the real self seeking, hard pushers, posture with back handed promises to their peers and they get elected into position. So ultimately we get the worst of the bunch. Hope this helps?

  23. He clearly has not thought very hard.
    In my view the answer is simple.
    FSCS compensation is a form of insurance.
    The purchaser of any item covered by FSCS should pay a levy at point of contract ‘to cover potential loss’. The charge will be minimal (a pain to collect but with technology…) and will readily acceptable by investors.
    The FSA side should monitor, not control, product launches and judge inherent risk, ie do the job properly where it has failed in the past.
    The trickier part is judging what level of compensation may be due in each case and we have seen lots of that to learn from.
    In the end though, ‘caveat emptor’ must be recognised just as when buying a bunch of carrots.

  24. Is it really beyond the endeavours of a Treasury Secretary, even one with as limited a capability as hoban, to see that a product levy is the only fair and reasonable method of allocating cost.

    This ensures that whilst the consumer continues to be protected he foots the bill for such protection. No different to buying a burglar alarm or buildings insurance.

    If he really cannot manage even this basic jump of logic then Cameron must surely remove him before he does any further damage to society.

  25. @ Glen McKeown

    Very funny – great comment…..

  26. I won’t be paying anymore from 2013 as I am throwing in the towel.

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