The Investment Management Association says proposals for the Financial Service Compensation Scheme contained in the draft Financial Services Bill could mean different rules for those overseen by the two new regulators.
The Bill will replace the FSA with the Financial Conduct Authority and the Prudential Regulation Authority. Whereas currently the FSCS’s rules are made by the FSA, the Bill splits the rule making capability between the two new regulators. The specific cases under which each may make rules will be set by the Treasury and each must consult the other before introducing new rules.
It says: “We are unconvinced that the high level cooperation duties will be sufficient to ensure a joined up set of rules. We fear that regulators making different rules about different parts of the scheme could result in a de facto separation into two schemes, one for PRA firms and one for FCA firms.”
It says this could lead to investment managers, whom it expects to be regulated by the FCA, to become liable for all misselling compensation under FCA jurisdiction. It adds that the bill is unclear on how responsibility for rule making will be divided between the two or how differences of opinion will be resolved and that the FSCS’s rules should be made or approved by the Treasury.
In April, the IMA decided not to pursue a judicial review of the FSCS’s interim levy which saw fund management firms payout £233m and advisers payout £93m to cover the cost of compensating Keydata Lifemark investors. But in its submission it says no firm should be required to cross-subsidise a failure in another unless there is “affinity” between the products and services concerned and that if that condition cannot be met the levy should be applied to all firms covered by the PRA and FCA.
The IMA also says the new regulators should be accountable for how well they meet their statutory duties with an independently appointed complaints commissioner overseeing complaints.
The Bill gives the FCA a secondary duty to promote competition and while the IMA agrees with this it adds the FCA should be made to ensure the UK does not suffer any competitive disadvantage relative to other countries.