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PFS urges Osborne to intervene over FSCS product levy

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The Personal Finance Society has written to the Chancellor to press its case for a product levy to be considered as part of the Financial Services Compensation Scheme funding review.

The professional body wrote to George Osborne this week setting out its concerns about the current “unsustainable” FSCS funding model.

PFS chief executive Keith Richards says the FCA’s review of how the FSCS is funded – which started in May – is too narrow to deliver a “fair and sustainable” solution.

He says: “We would like to engage the Treasury’s support, from a public interest perspective, to broaden the current [Financial Advice Market Review] consultation to include alternative funding options rather than more narrowly tweak the current mechanism.”

A product levy appeared to have been ruled out of scope of the funding review at the first roundtable meeting in May because it would require a change in legislation.

However, Richards argues a savings and investment premium tax, similar to the insurance premium tax imposed on general insurance products, would reduce the burden of funding the FSCS for regulated firms and their clients.

He wants to see a product levy introduced alongside industry contributions which would be capped at an annual level.

Richards says: “Consistency with insurance premium tax might also allow the Treasury to generate additional revenue from a much broader source of contributors, which could additionally be directed to improved public financial awareness and education, as well as the proposed ‘free services’ [guidance programmes such as Pension Wise and the Money Advice Service].”

Informed Choice managing director Martin Bamford says a product levy would be more transparent for consumers in understanding what they contribute to the FSCS.

He says: “The consumer pays already but they just do not see how much they pay because advisers have to pay the levy and we have to factor that levy into our fees to consumers to ensure we are profitable.

“The advantage of the product levy is that it becomes transparent how much the cost of protection is and what the cost of compensation is.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Would actually suggest a levy based on the adviser charge…….. That will cover instances where there is no product but regulated advice has been given. In effect a tax on turnover but disclosed to the client. Or as I have often said, invoice the client for your work, add a levy as per insurance tax and off you go. Fully disclosed to the client.

  2. Of course the consumer pays in the end but should it not be the polluter at first instance. No wonder there is no trust in financial services. In terms of presentation this looks like we are saying to our customers, we are going to make a mistake but before we do we want you to pay. It is shameful. If BP put 10p on the price of petrol because there may be an oil spill members of the PFS would be writing to MPs.

  3. Note, back to Mr Richards from Mr Osborne -: You do know the regulator is independent from government, and therefore the Treasury, Right ?

  4. Julian Stevens 13th July 2016 at 1:18 pm

    As David Severn has written (here), a product levy on new sales going forward will take so long to make any significant inroads on the massive consumer losses from past mis-sales that the FSCS is still constantly taking on as to be like trying to empty a lake with a hand bucket.

    After all, any product levy on new sales will have to be applied primarily to fund the FSCS against un-covered investor losses in respect of possible failures of those newly sold products, not just failures of existing ones that may have been mis-sold many years ago.

    Has the PFS done a Cost:Benefits Analysis on this proposal?

  5. Congratulations Keith and the PFS on demonstrating support for the principle of a Product Levy. I am confident that there are a number of ways in which such a broadly based and fair solution can be delivered. What we need to ensure at this stage is that such measures are properly included and considered in the FSCS Funding Review. Not excluded as a possibility from the outset which is the current position.

  6. Many of us have including myself have been requesting this type of arrangement since 2006. The current system is unfair as we have no control over what other advisers do.

    Unregulated investments arranged via regulated advisers is causing much of our pain. We should also be requesting re unregulated investments an additional regulatory permissions. Regulated advisers to be able to recommend and arrange unregulated investments should have to apply for additional permissions and pay an additional levy. We all know for the majority of UK consumers there are more than enough regulated products and investments to meet their needs. Some changes by the providers offering Regulated SIPP investments only would not be that hard or costly to produce and regulating some other investment vehicles would not be that hard to do.

  7. Note back from George Osbourne – You think you’ve got problems, I’ve just been sacked.

  8. A great idea but even with a new chancellor this idea sadly will not fly.

    But in-keeping with the ‘polluter pays’ idea, the Treasury, consumer bodies and the industry may wish to consider this.

    Over the last century or two the nations wealth and success was built on our vast below ground natural resources.

    Coal, tin, oil, sand, cement, gravel extraction have all played their part but many fear that these resources have a limited life as dwindling stocks make it more expensive to recover.

    Of course with all natural resources there is a tax raising opportunity but if stocks of natural resource reduce or become exhausted this will in turn see tax revenues reduce and that spells trouble for HM Treasury.

    But we need no longer fear where the nation will turn to get more ‘natural resource’ and all because of some very clever ‘fine fracking’ on the part of the last government.

    A decision by Parliament on 27th February 2013 saw a very big ‘gusher’ explode out of the ground in the form of 2014 banking fines being paid away to HM Treasury.

    Fines in 2014 alone were £1,462bn. To put some contextual scale to this massive amount, the total revenue raised for alcohol and tobacco in 2014 was £197bn- that equates to 4% of total UK taxation revenues according to HMRC figures.

    The FCA was obliged by statute to pay away £1.370bn of the fines the Treasury, the equivalent of 70% of all alcohol and tobacco levies for 2014.

    Fines should fund the FSCS with the industry then making up any shortfall.

    The consumer, government and the industry would see that the polluter has paid, the resulting benefit being that a very big proportion of regulatory cost could be saved and the benefit passed back to the consumer by way of lower cost.

    Who could possibly object to that?

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