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.”