The FCA has all but ruled out a product levy to fund the Financial Services Compensation Scheme, but it is considering how to better link product risk with fees.
In its consultation paper reviewing the funding of the FSCS, released today, the FCA says: “We considered this [product sales levy] carefully. We understand the desire to increase the role of product providers and create a clearer link between products manufactured and FSCS claims, even where these products are advised on or distributed by third-parties.
“Although we are not proposing to introduce an actual product levy, we are considering whether we could more clearly link product risk to levies and whether product providers should contribute to claims involving intermediaries.”
A product levy was previously said to be out of scope of the review because it would require a change in legislation. Adviser trade bodies have since lobbied extensively for such a funding model to be considered in the consultation.
The FCA said today the challenges over how pre-funding using a percentage of product price could cater for compensation volatility and tax issues that fell outside the review’s remit were additional challenges that had presented themselves.
Personal Finance Society chief executive Keith Richards says: “While it is disappointing that the FCA has effectively ruled out the possibility of introducing a product levy, it has acknowledged that there are other ways it could more clearly link product risk to FSCS charges.
“The concept of a risk-based levy, where firms could be eligible for a discount if their behavior reduced risk, has merit and is certainly worth considering in more detail.”
The Association of British Insurers criticised the proposal contained in the consulation for providers to pay more to guard against advice firm and other intermediary failures.
ABI regulation director Hugh Savill says: “We see no justification for the blurring of responsibilities in this way. We will be engaging fully in the consultation, with a focus on challenging the rationale behind this idea.”
Apfa director general Chris Hannant says he pleased overall that the FCA has acknowledged the importance of looking at the scale of FSCS levies.
He says: “In particular, the growing problems around Sipps and pensions must be addressed. Preventing consumers being ripped off should be a high priority for the FCA.”