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Mutuals and MPs join call for FSCS shake-up

MPs and mutuals have joined advisers’ calls for an urgent review of Financial Services Compensation Scheme funding.

Labour MP and Treasury select committee member George Mudie said in a committee evidence session this week it is time to re-evaluate FSCS levies.

In November, the FSA postponed a review of the FSCS’s funding model because of upcoming changes to the regulatory framework.

Speaking to Money Marketing after the session, Mudie said the review must go ahead.

He said: “If the FSA cannot do it itself, it should pay for another independent body to do it.” Mudie added that regulatory fees and levies should be agreed at the start of the year and cleared with Parliament.

He said: “If levies are made, they should get ministerial approval. It is too much of an open chequebook for the regulator, which seems to totally disregard the size of firms in its calculations.”

Nationwide chief executive Graham Beale and Co-op chief executive Neville Richardson told the committee that as the FSCS’s deposit class payments depend on the size of retail deposits rather than risk, mutuals are paying more to compensate people than riskier institutions in the class.

Richardson said: “Our deposits are greater than the money we lend out and that makes us lower-risk. Conversely and quite bizarrely, in compensating for the Icelandic failures and so on, we have to pay more and that just seems wrong.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. The FSA need to mandate ” run off ” PI cover. Imagine the levies when hundreds and hundreds of firms leave the industry and “dump” liablities on the FSSC. Current levies will be dwarfed by the money required post RDR if there is no mandaotory run off cover is

  2. The whole system of compensating the consumer for loss needs review not just tinkering with the current system as it is unsustainable and not fairly apportioned.

  3. Another warning to those that operate unfair systems, spend other peoples money as they please (TV ads, nice offices, bonuses etc) and treat the people that fund them with utter contempt.

    Actually the FSCS as it stands probably works OK if IFA’s just fund IFA’s and not product providers.

  4. Green Eyed Monster 2nd February 2011 at 4:18 pm

    Jamie: The trouble with mandatory run off cover is that without a 15 yr long stop the premiums will be so exorbitant that nobody will be able to afford it!
    The only solution is pre-funding, and this can be a done by a product levy or cheque or any combination of the clients choice.
    Remember it is the client that benefits by the scheme so the client should pay the premium. If the client decides to pay by product levy, this is an instruction to the product provider to remit £X to the FSCS ( monthly or singly as appropriate) from the client’s investments/premiums.
    Subsequently it does not matter if the intermediary vanishes, the client’s investment is protected by the scheme, AND no charge falls on the other regulated firms. If a product provider won’t co-operate with facilitating the levy then the intermediary will bear this in mind when undertaking his product research for other clients. It is unlikely that a product provider will not facilitate a levy, given that after 2012 the intermediary and the client will be deciding who gets what from where.

    All that needs to be done is for the FSCS to agree that pre-funding is preferable to the current system and to issue guidance to IFAs as to what is an appropriate level of levy per product. Their own claims experience will inform this.

  5. Run off cover Jamie? Some problems with that, can you get it, what does it cover and how long does it last?

    Come on folks, listen for once in your frantic lives!!

  6. With RDR and no commissions or perceived bias, its time that either the products are approved by the FSA or the premiums / product charging structure reflect the ‘risk’ and the client pays for the ‘protection’. When endowments were the ‘rage’ and even consumer protection groups recommended them by rating them for their guaranteed sums assured, reversionary bonuses and terminal bonuses, the providers were fooling us all using peter to pay Paul and inflating their actual returns to give them a better ranking in performance tables. Admitting finally that they were never charging enough premium for them to actuall pay off mortgages. If these had been properly scrutinised by successive regulators, there would have never been shortfalls. What we need is for the FSA to confirm products can and will do what they say (within risk profiles) and to ensure that products are sold to the people with the correct profile. This would reduce ‘losses’ and therfore reduce the need for the FSA & FSCS intervention. Then IFAs would truely be able to get on with providing good advice, confident that the products were safe and designed to do what they were supposed to do.

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