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FSA confirms FSCS claim limit hike; launches new consultation on retail pool

FSA Front 480

The FSA has confirmed the annual claims limits for investment advisers under the Financial Services Compensation Scheme will increase from £100m to £150m but says it will consult again on some of its reform plans in the wake of industry opposition.

The FSA published a consultation in July which proposed new annual claims limits for firms. In its latest consultation paper on FSCS funding reform, published today, the FSA has confirmed the annual claims limit paid by investment advisers will go up by £50m. Life and pensions advisers will continue to meet claims up to a £100m threshold, while fund managers will see their claims threshold reduce from £270m to £200m.

The regulator also suggested the creation of a retail pool for firms under the Financial Conduct Authority which will have to meet claims where one class breaches its annual limit. This idea was met by fierce opposition by the industry, particularly the Investment Management Association, which argued the plans would mean providers would not be liable for misselling claims which related to their products.

The FSA says in light of these concerns it is opening a month long consultation on a new proposal which would see all providers make contributions when the pool is triggered by the failure of an adviser. This would include contributions from banks, insurers and mortgage lenders.

The regulator has also confirmed plans to calculate FSCS levies based on claims expected over a three year period, rather than the current annual claims forecasts. The new forecasting period will apply from 1 April, 2014, but will not apply to the deposits class.

FSA director of conduct policy Sheila Nicoll says: “We have listened to industry concerns and want input on this revised approach for the FCA retail pool. 

“Finding consensus on this subject is always going to be a challenge but we remain committed to finding a workable solution that firms can afford and live with.”

FSCS chief executive Mark Neale says: “We recognise our levies can hit firms hard. The environment in which we operate is highly unpredictable. The costs of failure can be high.

“But our overriding concern is to make sure we have the money to pay claims as they fall due. There is no magic bullet to the funding issue. And there is no perfect system in what is a zero sum game.

“What I can promise is the FSCS will continue to strive under the new system to provide as much certainty or forewarning as possible to firms about the potential costs of compensation. We take our accountability to the industry very seriously.”

Association of Professional Financial Advisers policy director Chris Hannant says it is pleased the FSA has listened to industry feeback and proposed to keep a cross-subsidy if advisers breach their annual limit.

But he says: “We are disappointed the FSA has not announced a more sensible threshold for investment intermediaries. The regulator must recognise the RDR and the wider economic environment will affect adviser revenues.

“The lack of revision to the threshold for investment intermediaries is a missed opportunity to build a more stable and affordable funding model.”

Click here for an enlarged version of the below table

FSAtable-RevisedFSCSretailpool-2013

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. We really need someone from the thousands of small IFA firms with just a few advisers to be involved in this. How can we do it? There absolutely has to be a modicum of common sense involved. Any takers?

  2. It’s not the amounts that are important it’s whose claims you are going to have to pay.

    I don’t mind having a £150m ceiling if I am in a group that consists solely of IFA’s. I am happy to back up the advice of fellow professionals and believe that doing so can only increase the trust that the public has in what we do.

    However I do object if I am in a group that includes dodgy investment companies, American stockbrokers and spreadbetting companies.

    Get some fairness in the groupings and THEN we will discuss funding limits.

  3. As a result of industry opposition they are having a month long consultation – after which like RDR they will decide they were right after all.

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