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Will the FSA change its mind? Industry puts forward FSCS proposals

FSCS Interior 480

The industry has put forward a range of alternative Financial Services Compensation Scheme funding models to achieve a fairer way of levying regulated firms.

The FSA’s consultation on reviewing the FSCS funding model, which closed last week, proposes increasing the annual limit of claims paid by investment advisers from £100m to £150m and calls for claims exceeding the annual limit for one class of firms to be met by a Financial Conduct Authority “retail pool”. It also proposes basing the levy on either one third of the claims expected over the next three years, or the costs anticipated for the following year, whichever is highest.

The Investment Management Association argues this proposal would lead to a build-up of reserves, but the FSA has not said how it would deal with this. The IMA suggests each class should have a reserve of its annual claims limit which could be paid out when the limit is breached or released back to firms if it is unlikely to be needed.

Aifa suggests echoing the approach of some European countries where a fund is built up through a product levy on advice based on a percentage of income from investment activities. The trade body says FSCS cover should be limited to certain products such as unit trusts and Sipps investing in UK funds and assets, with offshore and structured capital at risk products excluded.

The British Insurance Brokers’ Association wants to see a sub-class for “pure” insurance brokers to separate them from firms selling insurance as an ancillary product, such as banks.

Philip J Milton & Company managing director Philip Milton says: “A product levy seems the best idea as it introduces the concept of investor protection, which investors have to pay for.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. A central part of the problem with any attempts to negotiate with the regulator is that its view of any such representations is that they’re based on self interest rather than a reasonable call for fairness. The regulator sees anything that might cause consumer detriment as being the responsibility of the industry and so the industry must pay, no matter how vast the bills may be. ArcCru goes down ~ nothing to do with any regulatory failings, it’s the fault of “the industry”, so the industry must pay. Ditto LifeMark/KeyData ~ what about the findings of the 2008 Arrow visit on which no action was taken? Never mind that, it’s an industry failure, and therefore the collective responsibility of the industry, so the industry must pay.

    What about denial of any longstop for intermediaries? Never mind the fact that all other industries have it. Intermediaries must take responsibility for their transgressions ~ for ever and a day.

    What about the endlessly spiralling costs of funding the current regulatory empire? What about all the calls for some meaningful efforts to be made to economise? Never mind that ~ if the industry wasn’t so badly in need of yet more regulation, the costs of that regulation wouldn’t need to be so colossal.

    What about the MAS, which does little if anything over and above what the CAB and a host of other agencies already do? Never mind that, it’s clear (to the regulator) that the industry has failed to educate the public properly in prudent fiscal management, so the industry must pay for a new agency to do the job for it.

    What about a product levy to fund the FSCS? Oh no, if anything goes wrong it’s all the fault of the industry, so the industry must pay. We can’t have investors being required to pay towards the cost of their own protection, as they do when they buy a car or a house. Why not? Because. End of.

    And on and ever on with, it seems, no end in sight.

  2. Julian, I dont think your first point is strictly true, if 100 people gave 100 different options then it could be seen as self niterest, however if 100 people suggested the same method then it would be viewed as an industry opinion. The problem comes from being in a very fractured and disparate industry which makes getting people together very difficult.

  3. Will the FSA change it’s mind?
    No. No matter how crazy the proposal, the FSA cannot lose face. That is the most important factor one must take into account.
    The FSA think an about face will make them look silly. Little do they know. Reminds me of that old adage “to have the grace to see ourselves as others see us”

  4. You make a very good point Julian, the FSA has in it’s mind that the consumer should not pay for the cost of the protection as it is “not their fault”, it does not matter how many cases advisers present of clients with short, medium or long term memory loss when the want “compensation”, the FSA will not listen to such an argument, it never has, and probably never will.

    However, as we all know, at the end of the day the consumer does pay. The amounts that have to be paid by anyone in this industry, that is companies and advisers, are all part of the total overheads, as such they are taken into account when pricing the product or the advice. Having just revisted my own pricing structure I have put up the amount I charge, there is only one reason for that, which is the extra cost of FSCS, FSA, MAS etc. etc. etc.

    Why cannot we be totally clear on this and add a product fee to fund a pool for compensation claims, it has the benefit of being simple and easy to explain, but perhaps that is the problem.

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