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Mark Hoban responds to FSCS concerns

Mark Hoban says those with complaints about cross subsidisation in the funding of the Financial Services Compensation Scheme will be grateful for it when their sector faces significant losses.

Speaking at the Treasury select committee session yesterday, the Treasury financial secretary said the argument for not paying for failures outside a firm’s sector is “seductive”.

He said: “It is very easy to say, ’my sector should not be hit now for the levy because it is not my problem’, but the time may come when it is a member of that sector who have to pick the bill and they will be grateful for some of the cross subsidisation on offer.”

“I think this is a very difficult balance and I understand the concerns and I have had letters from building societies, IFAs, investment managers all uncomfortable  that somebody needs to pick up the cost of failure. Actually it is important I think for consumer confidence that the cost of failure is picked up somewhere.”

He told MPs he believed it is important FSA fee payers feel they are getting value for money and that the provision for the National Audit Office to look at whether the regulator is delivering this value was “underused”.

When TSC chair Andrew Tyrie asked Hoban if he would think about further ways of achieving value for money beyond engaging with the NAO, he agreed.

Hoban said: “It is something we need to think about very carefully, it is not something we can leave until the regulatory structures are in place.”



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There are 37 comments at the moment, we would love to hear your opinion too.

  1. Mark Knoban did you say>

  2. it is not that this sector is being hit that is the problem. It is the whole idea that successful companies not designing these products or not peddling unsuitable products to clients have to pay for those unscrupulous companies blinded to risk by the opportunity to make a quick profit.

    We need a fair and transparant process upon which we can plan for our business expenses and costs not be hit with outragous “fines” for the failings of our competitors

  3. “I think this is a very difficult balance and I understand the concerns and I have had letters from building societies, IFAs, investment managers all uncomfortable that somebody needs to pick up the cost of failure. Actually it is important I think for consumer confidence that the cost of failure is picked up somewhere.”

    A brick (the FSA) and a hard place (the Government) ……….somewhere in the middle (the IFA)

    Failure can be proportioned quite simply between the FSA (through its incompetence) and the Government (through its inability, or refusal, to control the FSA)

    Same old story though ……….we pick up the bill.

  4. The potential for unlimited liabilities falling on smaller IFA firms from the failure of larger organisations is completly disproportionate to the liabilities from an average IFA failing.
    The issues concerning RDR could be insignificant compared to the impact of this elephant in the corner of the room should a few companies/providers larger than KEY Data have issues and the FSCS levey as a result.

  5. Joke when are the FSA going to pay for their failiures? and give us value for money, perhaps by spending less on christmas parties.

  6. How much is our failed regulator paying towards this. Perhaps they could donate their bonus for failing to regulate.

  7. As usual Mr Hoban cannot see the real issue.

    The system is wrong and unfair so to continue to use it knowing it is unfair and unjust to many shows a real lack of judgement and responsibility.

    Coming from a Government that says it is gong to give us “justice, fairness and responsibility” you wonder if they know what these words mean.

  8. Incompetent Regulators Award Team 3rd February 2011 at 9:19 am

    In that case Mr Hoban you show some solidarity with your fellow MPs for their expense scandals and do a stint in prison for them, like David Chater and others who may go down. As you have had £150,000 of services which are undisclosed. Then your fellow MPs will do a bit for you if you are ever in need!

  9. Oh dear. He clearly just doesnt get this.
    The current system (ignoring the lack of fairness etc) will not work in time of great stress without asking for so much money from firms that they go under or eventually choose not to play anymore. Ever increasing levies from an ever dwindling number of payers can only end one way, so whats the point in persisting with a system that cant work when it will be most needed, ie at a time of greatest failure.
    Those who pay for protection should be those who will benefit – so as has been mentioned over and over for the last year or more (and set out very cogently by Mike Fenwick recently) what we need is free market insurance principles producing a protection levy to be paid for at the point of purchase. Transparent, fair and we could also give consumers choice to buy it or not of course. (I think consumer choice is GOOD).
    As a bonus, the protection (against default risk)premium of a product or asset would provide extra info for advisers and clients to consider when recommending/buying products. Its what happens in every other business sector so why not ours?

  10. John Rawicz-Szczerbo 3rd February 2011 at 9:23 am

    Those incapable or unwilling, or simply out of their depth, should not try to bumble along to make themselves look important. Pathetic! He has form on receiving letters from IFA’s and others – he was the lone voice standing in parliament with 80 MPs lambasting the RDR process. When digging yourself into a hole I guess you have a choice. More ‘toot’ from those who have no idea or relevant experience! Let’s just make it up as we go along!

  11. as usual Mr Hoban proves by his comments that he is totally out of his depth!
    He doesn’t understand the problems and is happy to read scripts provided to him by the FSA. Come on Mr Hoban either listen to the problems and respond yourself or resign.

  12. Perhaps the solution lies in the regulator “licensing” the product as fit for purpose and taking responsibility for that approval and a product levy paid for by the consumer.


    How stupid, I forgot that regulators do not assume responsibility, they only apportion blame!

  13. One cannot but feel some sympathy for Mr Hoban what with all of these late night sittings – I read somewhere that on the last late night Parliamentary sitting on the RDR he nearly missed his last Star Chip Enterprise journey back home to the far and distant planet Zog.

  14. Once again Hoban proves himself to be an idiot!

  15. Lets see if we can get a figure on all of the money fraudulantly claimed for ficticious expenses by all MPs over the last 20 years, then ask Hoban and his buddies to devide the costs amongst themselves and repay it.

    Hoban is only headline seeking and preparing for his next new role in politics. JUST A PUPPET

  16. “Actually it is important I think for consumer confidence that the cost of failure is picked up somewhere”. I doubt the consumer realises that the cost of failure on the part of the regulator is picked up by the consumer either in increased fees or reduced service as even more new business is sought to cover the burgeoning cost of regulation. I have no ‘black hole’ of funds to pay this, my clients will have to.

  17. Cost of failure

    Yeah we who are left and have tried to do the right thing by our clients have to pick up the Cost for Failure.
    Failure of the FSA to regulate.
    Failure of the FSA to listen to those it regulates when they were told of problems.
    Failure of the FSA to act in the best interests of the consumer rather than the Banks.
    Failure of the FSA to understand what was going on.
    Now of course it is too late those that have caused the losses are away and sitting in the sun and we who are left are having to pay and pay and pay.
    Where is the reward for doing right?
    Those who failed us are heaped with reward bonus payment, golden handshakes, massive pension pots.
    Trouble is he still has not grasped the fact that it is the System that is unsustainable and needs reform but he is just a an accountant ticking boxes and looking through the rear view mirror never looking ahead.

  18. Steven Farrall (Adviser Alliance) 3rd February 2011 at 10:10 am

    “Actually it is important I think for consumer confidence that the cost of failure is picked up somewhere.”” – And there you nhave the whole problem. He fundamentally misunderstands economics and moral hazard. If you insulate everyone form the responsibilities for their actions, and appear to visit the costs of that irresponsibility on other people, no-one, as in no-one at all – IFA’s, Clients, Product providers or anyone will take any responsibility at all. The best way of doing this is have everything commercially insured. And the premium for that risk declared to the client to chose whether or not they wish to buy it or take the risk. Hoban is just another clueless statist apparatchik intent on his self promotion in the political class.

  19. It is quite obvious that Mr Hoban is not understanding the level of problems the FSCS is causing.

    Smaller IFA’s like us who run strict proceedures, low risk business models are having to cross subsidise the riskier more reckless business models. In the process he is damaging our business, service levels and holding back our ability to expand our services and numbers of staff.

    Throw in the risk assessments by your local bank or financier, and the FSCS and FSA between they are causing a lot more damage than they anticipate or understand.

    …. Or maybe they do understand but really don’t care. Either way it is undermining IFA’s and damaging the industry which is not good for our clients ultimately.

  20. Steven Farrall (Adviser Alliance) 3rd February 2011 at 10:13 am

    And one other thing, as I keep repeating we, that is the broad FS industry, never vere pick up the bill. Our client’s ultimately pay the bill. These levy’s are levy’s directly on the whole of society. they are ‘money talen out of the economy’ to reward special privilidges to a select group. And in doing so take away freedom from the rest of us.

  21. I’m an avid reader of this ‘column’ but have done my best to avoid getting drawn into it so far, as quite simply I’m a very busy man! But this really does take the biscuit. Mark Hoban clearly misunderstands the role of the FSCS. It is not here to underwrite investment losses to benefit firms from a cross subsidy. Why would anyone feel ‘grateful for the cross subsidies it has to offer’ when it will only pay up when your business is INSOLVENT!! Why would you care!

  22. 3rd February 2011 at 10:21 am

    FSA fines for poor practice should be redirected to the FSCS and not be used to cover the FSAs own costs … this way bad advice fines always pay for bad advice firm failures

  23. Says Hoban: “it is important FSA fee payers feel they are getting value for money [we don’t] and that the provision for the National Audit Office to look at whether the regulator is delivering this value was “underused” [not used at all as far as I’m aware].

    No comment is offered on the injustice of dumping on the intermediary sector the consequences of the failure of LifeMark the provider (which held the assets), not of KeyData the intermediary (which didn’t).

    And how about a product levy, even if such a levy goes only part way towards funding the FSCS?

    I don’t believe a word Hoban says ~ he’s just the FSA’s stooge at the Treasury.

  24. I am the only person thinking that as we work in an Insurance industry the solution should be that each company insures against the risk of default. The larger the firm the higher the cost of the Insurance so it will be proportionate.

    If you fail or have the Insurance meets your obligations.

    Smaller IFA firms would have a much cheaper bill than the FSCS levy I imagine and if you don’t hold client money then there wouldn’t even be a need for Insurance of that type.

    Surely that is fairer. You take care of your own business. The riskier your business model the higher your insurance cost.

  25. Oh dear.

    He just wants the wage and doesnt want to be hassled with the detail of the job.

    Does anyone else think Mark Garnier stands out as someone with an awful lot more idea of the industry in general?

    Clearly he has not recognised a pattern or trend, makes you wonder what he would notice.

  26. Anonymous@10.45 am has a valid point.

    Employers’ liability cover seems to provide a model for this as it continues to be valid long after the employer ceases to exist.

    However, as Evan Owen has said elsewhere, the lack of a long stop, coupled with the FSA’s insistence on retrospective reviews and FOS failings hardly make it an attractive proposition to insurers.

    The existing model, though, seems doomed to suffer the same problems as the state pension – ever increasing costs on an ever decreasing population providing the revenue required.

    We need somebody capable of really tackling the problem and thus far I have seen nothing to suggest that somebody is called Hoban.

  27. It is very obvious from his comments that Hoban has no idea what he is talking about.He simply repeats the soundbites given to him by the fsa.
    He should stand down now before he is completely disgraced.

  28. Surely the point about failure is to reduce the possibility to a minimum. If the FSA took this responsibility at the beginning of the process instead of after the event these issues could be curtailed and the consumer protected.

    In the medical arena a drug cannot be used without extensive checking and approval by the appropriate authority; this does not stop innovation!!

    Why then can the same process not be in place for financial products? Approve the product, risk grade it and the risk grade the provider;so before it goes near a consumer the risks are clear.

    Then when things do fail the onus is clearly on the FSA, who have returns, accounts and a myriad of other information to hand; so they pay the compensation.(and we pay their fees)

    Surely this would help build consumer confidence.

  29. MH (Not Mark Hoban!!) 3rd February 2011 at 12:37 pm

    I have placed regular ‘comments’ here on MM along with other places. Emailing my MP along with emailing the Treasury Financial Secretary (as he likes to be known) and subscribing to the legal fight that we recently lost.
    Alas, I now have an ’empty tank’ and can continue no more. The reasonings behind this decision are that as much as we all shout and as loud as we all shout NOBODY really cares!
    If you are not an IFA (like I am and have been for 30 years – and I hold level 4 equivalent the way) trying to run a successful business model (which is now deemed inappropriate) no politician cares. We have seen the lack of understanding and respect the Labour government had for our industry and our businesses by allowing Mr Browns FSA ‘quango’ get unbelievable out of control and now we have the countrys elected ‘Alliance’ show the same disrespect for all of us. I have (unfortunately) accepted the fact that the RDR we go through in its entirety as the FSA wish (good luck by the way to all of you who have supported it – there is an old saying of beware of what you wish for) and will be taking the option of early retirement from the industry that I have loved working in and in fact feel honoured to have been a part of all these years.
    I wish you all the very best for the future (sincerely).
    PS – Sorry if I have offended any of you in the past, it wasn’t personal.

  30. The financial services industry and the taxpayer keep having to pay for failure every single day, the failure is down to the regulators and the legislation that empowers them.

    But of course the failure lies ulimately with the politicians who cannot resist fiddling with regulation because it hasn’t worked, isn’t working and in all probability won’t ever work.

  31. It is best to be thought of as a fool, than open your mouth and remove all doubt.

  32. Maybe I’m remembering this incorectly – but didn’t the FSA dislike the idea of cross subsidy when it came to fees for clients?

  33. NT
    You are spot on.
    The trouble is that when it comes to advisers the fsa do everything but treat them fairly.
    It is a case of do as we say not as we do.

  34. MH – thanks for your contribution.

    I think you are right no one gives a damn.

    NT – No, you remember correctly.

  35. Not so much a response as a total lack of concern.
    Hoban has firmly aligned himself with the regulator and against the regulated, there is no middle ground. He is out of his depth and relies on the regulators version of the situation.
    Neither side will therefore respect him.

  36. The growth in the levy is a major challenge for the adviser community and it could wipe it out if we are not careful. This problem is even more worrying than the spread of internet grooming.

  37. Quite right Mr Hoban.Let us ask MPs to pick up the cost of the banking failure after all it was them who made it possible by creating the FSA as regulators and supervisors.

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