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Industry hits out at FCA as product levy ruled out of FSCS review

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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.”

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Comments

There are 21 comments at the moment, we would love to hear your opinion too.

  1. So it’s OK to charge 10% IPT because the Government can trouser it, but not acceptable to have a product levy which would probably be no more than 1%.

    As the Americans would say: “Go figure”.

  2. Would any product levy only apply to those using a Financial adviser ? Not sure I would want to pay any levy, no matter how small for investments made without the benefit of financial advice.

    • Do you want FSCS protection for your investments if the provider fails? If so, that’s where we are on this John, as it’s a scheme levy to protect against the failure of all regulated firms, be they advisory or product providers, so it’s about spreading the cost rather than removing it

  3. I never expected any other outcome. First and foremost, the FCA needs to admit (or not be given any opportunity to deny) the fact that the present crisis with the FSCS is a direct result of its own regulatory negligence. But, when people like Sants ~ CEO of the FSA when all this was brewing ~ are given and allowed to keep a knighthood, what hope can there be of reforming an obviously and fundamentally corrupt organisation?

  4. Counting down the years!! Deliberation with relative inaction rules the way; in the meantime, the innocent continue to pay increasingly more for the wreckless! A massive step forward would at least be to introduce the simple rule of regulated firms only using/advising upon regulated products… now thats proper regulation isn’t it; sorts a lot of the wheat from the chaff? I want regulation that protects me and my clients but not at the price we are both needlessly paying. We know the answers and they have been put forward many times by real people who work at the heart of this industry and feed off the results of their own endeavours and not those of others; but it seems for some reason that those who are charged with taking the decisions don’t want to go there but feel it’s ok for us to carry an ever increasing cost burden! How many times must we fail before someone really listens to the people who know the customer and the market first-hand… or are we still just viewed as salespeople flogging stuff to anyone who will buy, because that is most certainly how it feels I have to say!

  5. A product levy would not work anyway – Its not the legal, law abiding, regulated fund houses that products’ fail, its the dodgy, unregulated, offshore, shady organisations. How would you make them sign up to a levy on their products????

  6. This may seem like an off the wall idea, but how about any firm that sells any (even one)unregulated product is liable for an FSCS levy for those claims for unregulated products and those firms who only sell regulated products are liable for any claims via a levy for any claims from regulated products.

  7. I agree Steve D. The claims on the FSCS are a damning indictment of how poor the regulators have been over the years and actually doing their basic job of protecting customers (is that still in the FCA’s remit?). Had they been up to task bearing in mind they have been doing this in various guises for 28 years now there should be zero or low FSCS claims. Too much concentrating on processes than results. But creating new processes to follow keeps the FCA in a job in enforcing them- measuring results is easier and more effective (but requires less people)

  8. Sorry meant Julian Stevens ( no offence Steve D!)

  9. Page 12 section 2.10
    Firstly, the terminology “stops SIPPS being missold” is telling. The advice industry has moved on beyond RDR yet the Regulator doesn’t seem to have registered that we are actually paid money for giving advice, not for “selling” a product. I think its been a few years now hasn’t it?
    But more crucial is the opening line in this section. All the talk in the CP (from what I’ve read so far) is about compensating consumers AFTER the event. (46,000 claims each year!!?? gasp). But this line (about prevention) is the key – the regulator MUST do more to PREVENT the problems arising and the answer could be quite simple.
    Any provider (Uk based or foreign) who wants to have their product recommended by UK regulated advisers MUST obtain prior regulatory approval, which should be where the appropriate due diligence takes place. Then, UK regulated advisers should only be allowed to recommend such regulatory approved products. Some minor diminution of choice, but insignificant compared to the huge benefits it would bring.
    IF clients still wish to buy non approved products then they can, but they would have no UK-provided FSCS protection.
    “Product” failures, client losses, PI premiums and FSCS claims would all plummet.
    Claims against advice firms would then quite rightly ONLY focus on incorrect or inappropriate “advice” rather than product failures.
    This, coupled with a tiny product levy on all approved products, plus a tiny advice levy on advice fees, plus an obligation on PI providers to meet claims should an advice firm fail would more or less solve the whole problem, but most importantly would stop clients going through the horror in the first place.

    • Paul thesis a great and very simple solution however as it requires the FCA to actually put the necks on the chopping block by approving products, I am afraid it won’t happen. They simply will not do it and have said so on numerous occasions. Pity because it would give everyone confidence in the system to have a suite of products that have been approved for use by the Regulator. Now that would be NEWS

  10. I’m guessing they allocated this a full 15 minutes over the morning tea break to allow them to be truthful about giving this some consideration. However did they really give the matter the full due consideration it deserved? I seriously doubt it. The majority of these claims are in respect of dodgy offshore opaque investments from untrustworthy organisations. Any adviser firm who allows their clients capital anywhere near such investments should be subject to extreme regulatory measures. The problem is each successive regulator has failed miserably at identifying such firms. It is only after the problems arise does the regulator look at what was going on and by this time it’s far too late, the clients have all lost their capital and the rest of us who have the common sense and decency to stay away from such outrageous scams get left with the bill to clean up the mess. How this serves to create and maintain confidence in the market is beyond me. The solution is simple. (1) Make such investments unavailable to retail investors and any organisation which fails to follow that rule is subject to extreme measures. (2) Adviser firms should have to report in detail any such unregulated business which would allow the regulator to identify the firms active in the market. (3) The regulator should obtain from the unregulated investment full details of all investors including their advisers and cross reference this with the information provided by the adviser firms.

    This isn’t rocket science and considering the amount of information our PI insurers request, it beggars belief that the regulator is still so far behind the curve on this type of thing. Considering all the data the regulator does ask for in the Gabriel Returns which clearly can’t provide much meaningful info, it’s outrageous but hardly surprising that the regulator, with it’s vast resources, cannot get its act together and do the job well to prevent such issues. So much for the old cliché of “lessons will be learned”.

  11. I read in another report on this Kieth Richards said this outcome was “disappointing” ? what…. disappointing ?, its more than disappointing, it is, yet again another slap in the face for our industry the FCA continue to hear our reply’s to its consultations, and then formally rejects all of them, democracy in the hands of bureaucrats.

  12. Let’s face it, claims on the FSCS over recent years relate to ACD’s not doing their job properly, mass sale of naff UCIS (typically in a SIPP) and alleged fraud/misappropriation by fund managers. All regulatory failures. Sort those issues out first.

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