The huge Financial Services Compensation Scheme interim levy bills which landed last week again exposes a regulatory system in desperate need of reform.
The latest £93m interim levy, mainly due to claims relating to Lifemark, means intermediaries will pay £1 07m this financial year in FSCS costs on top of the £11 Om that was paid last year.
The bills, which must be paid within 30 days or in instalments using an FSA credit arrangement, will have a major impact on profit figures for many IFA firms who are paying a heavy price for the failings of others – principally regulators which failed to pick up on issues with Keydata earlier.
Advisers already stretching themselves to abide by FSA demands to increase qualification levels, restructure business models and increase capital must put their hands in their pockets again to mop up the mess other people have created.
Consumers must have confidence they will be given an adequate degree of protection if they are miss old a financial product. But advisers, and those looking to invest in the sector, must also be given confidence that, year after year, they will not continually be made the fall guys for the latest financial services scandal.
The review of FSCS funding, promised by the FSA last year, has been postponed due to the regulatory shake-up but this issue should be made a priority for the Government and regulators.
Policymakers must look at overhauling the current sub-class categories, in particular, redefining the criteria for the intermediary sub-class, whilst retaining the important cross-subsidy requirement for providers to support distributors in the event of a large failure.
Perhaps a more fundamental reform of the compensation structure is needed and more radical ideas, such as product levies or insurance, should be explored.
As the Government continues its work on living wills for banks, debate is also required on ensuring advisers and other “intermediaries” do not leave behind a considerable mess for the rest of their sector to clean up.
The current polluters’ competitors pay model for compensation has been stretched well beyond tolerance levels in the advice sector. Advisers cannot keep paying such a high price for the failure of others.