As the debate on how to fund the Financial Services Compensation Scheme rumbles on, with little sign of a consensus, the real issue we should be addressing is not how the compensation scheme is funded, but if it is actually fit for purpose?
I believe that to be a very legitimate question, given the FSCS has built up a significant legacy of liability over the years, much of which relates to people or firms who have long disappeared.
Providing pooled protection for consumers against firms that are unable to meet their responsibilities is difficult to argue against. In reality however, a growing number of potential claims are being met by a reduced collective of contributors, driving some away from regulated activity and deterring new entrants to the market.
Ironically, the cost of the FSCS has been a contributory factor in reducing the availability of regulated advice. Consumer protection is correspondingly lessened, leaving many to fend for themselves and run the risk of falling victim to scammers.
Although the current funding review is welcomed, the parameters are too narrow. Much wider consideration must be given if we are to find a viable solution for the future.
With that in mind, we have re-engaged the Government to press the case for broadening the review beyond that of funding alone.
Professional advisers have no objection to making a funding contribution – ultimately the FSCS is there to protect their own clients and provide additional confidence in the sector. But contributions to the scheme should be fair and apportioned in relation to the root causes.
And this is the perfect time to do it. Whilst examining the FSCS levy with a view to making it fairer for advisers, the FCA also needs to ensure it is sustainable for the public.
If the opportunity is missed, the consequences of under-protecting and under-serving those members of the public who need regulated advice will not be favourable.
Keith Richards is chief executive of the Personal Finance Society