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Incoming £69m FSCS levy blamed on DB transfers and Sipp claims

FSCS-Piggy-Bank-500x320.jpgFirms will have to stump up £69m thanks to a new levy to combat the Financial Services Compensation Scheme’s deficit for 2018 caused by poor advice, says its chief executive Mark Neale.

In its November outlook, the FSCS says Sipp and other pension transfer failures accounted for 45 per cent of all defaults declared this year and 83 per cent of resulting claims received.

This is due to “larger claims volumes that relate to pension adviser defaults,” the FSCS says.

The lifeboat fund’s expected deficit for the year is almost the same size as the additional £75m levy on life and pensions advisers raised in April.

Neale says: “We expect a deficit by year end of just under £70m. This will, I am afraid, necessitate a supplementary levy falling on the retail pool and we shall announce the size of that supplementary levy in January.”

The FSCS says “common factors” are underlying all claims, led by vulnerable customers being persuaded into unsuitable investment choices.

FSCS boss: We want advisers to think our levies are fair

The failure of Beaufort Securities specifically noted, along with the failure of nine credit unions which will add to a projected £10m deficit for general insurance this year.

Neale says: “Unwise investment choices are usually held within a Sipp or to trade in valuable rights in defined benefit schemes [and] we see many examples of mis-selling as both regulated, but also increasingly unregulated advisers, promote risky, illiquid investments.”

Claims relating to other types of pension transfer have been increasing significantly in the past two years, driven predominantly by the failure of the British Steel Pension Scheme.

Under-capitalised businesses and phoenxing advisers also added to the strain on the lifeboat fund this year, Neale adds.

He says: “We see providers who fail to perform rudimentary due diligence on these investments and we see directors and advisers involved in failure who re-invent themselves and come back for more.”

FSCS still processing 2,000 Beaufort Securities cases

Six of the FSCS’s eight funding classes have been provisionally earmarked supplementary levies for next year.

In addition to life and pensions and general insurance provisions, this includes deposits, general insurance intermediation, investment intermediation and debt management.

Final levies for the 2019-20 financial year will be put in place by April, with on account levies also starting from next year.

Neale says the FSCS expects to collect 50 per cent of monies from firms that pay on account levies to the FCA and the Prudential Regulation Authority next year.

This is the maximum allowed and is expected to be in progress when Neale completes his current three-year tenure as chief executive in May and leaves the FSCS.

FCA confirms PI policies cannot exclude FSCS

The overall compensation payment forecast has been reduced by £4m however, ahead of expected increases in personal indemnity insurance claims before next year’s August deadline.

Despite the new levy, the FSCS says it is continuing to deliver ahead of schedule by decreasing wait times on pay outs.

The lifeboat fund’s partnership with Capita has seen 100 new staff inducted into its claims handling division this year including specialist staff.

A £37m contract with the outsourcing firm for claims management handling was negotiated in July.

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Comments

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

  1. “Under-capitalised businesses and phoenxing advisers also added to the strain on the lifeboat fund this year, Neale adds.”

    “Unwise investment choices are usually held within a Sipp or to trade in valuable rights in defined benefit schemes [and] we see many examples of mis-selling as both regulated, but also increasingly unregulated advisers, promote risky, illiquid investments.”

    I agree with both of the above comments. Sadly, I have to pay these additional levies because the regulator is just not doing enough to limit the damage.

    Mark Neale says it’s caused by poor advice. I think it’s caused by poor regulation and bad advisers keep on getting away with it, as phoenixing proves.

    • I agree with you, these additional levies are nothing that the F-pack haven’t been warned about, but instead they want to focus on “Prod”ing us.
      FCA – will you STOP trying to micromanage small businesses and focus on the issues that your fee payers and levy payers are PRODDING you and have been for sometime to address.
      As Corporal Jones says “they don’t like it up em Mr Manwaring”. Well keep PRODDING us and you are going to get prodded back, but harder.
      And don’t think prodding us will stop us prodding you as if you prod honest men out of business, they’ll have more time on their hands to prod you rather than help their clients.

  2. And this is just in respect of poor advice on the part of supposedly regulated FA’s that the FCA failed to regulate.

    It’ll also be limited to £50K per upheld complaint claim, so that’ll be 1,380 of them (or more if not all of them are as much as £50K). How far short of what many of these poor folk have actually lost will £50K be? Against a DB TV of £500,000K, an appallingly long way.

    And that’s not even taking into account losses incurred as a result of unregulated advice on unregulated investments. It won’t take too many upheld complaints against all the SIPP providers that accepted them to drive them into default, with their uncovered liabilities falling on the rest of the SIPP provider community.

    It’s almost PPI Mk.II. Remind me somebody ~ how did that come about?

  3. The fundamental flaw within both the FOS and the FSCS is making the industry pay for these losses.

    I am sure it’s very convenient for the Treasury, just like the FCA fines are very conveniently turned over to HM forces.

    Advisers have to factor these massive outlays into their fees which then invites criticism from clients and the very regulator responsible.

    Far better to be honest and have a product levy where consumers understand that the cost of their product is higher due to regulation and not due to adviser fees.

    • As proposed by Keith Richards (collectible by HMRC, as a tax, not by the FSCS), though I see practical problems with the implementation of such a scheme. The primary one would be who will decide which products shall be placed in which levy category? You can’t for example, (reasonably) impose the same levy on a Structured Deposit as a UCIS. And you’d have to have some sort of appeals system for providers who feel their product has been wrongly categorised. But the principle is sound.

    • Although the government claimed initially that fines levied by the FCA would be used to support injured servicemen (and presumably women), it later reneged on that commitment. Most of the money is, in fact, used for other things. The quite reasonable idea that fines imposed on wrongdoers would be used to offset the levies charged to the majority who haven’t done anything wrong and thus, in theory, facilitate lower charges to clients has gone out of the window.

      One wonders if, when considering how to go about the FAMR, the FCA asked the Treasury if its objectives might not be rather more realistic if this important cross-subsidy were to be restored. Either it didn’t or it did and its request was flatly rejected. Either way, the objectives of the FAMR remain hopelessly unachievable, a situation that’s exacerbated by the endless additional FSCS levies with which the IFA sector is burdened. When all is said and done, it’s the clients who have to pay because they’re the only source of our revenues.

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