The FCA has said that there is “no obvious solution” that will please all parties on Financial Services Compensation Scheme funding as it appeals for advisers and the wider industry to feed in to its ongoing consultation.
In a special edition of its ‘Regulation Round-Up’ series, the regulator highlights a number of areas it is focusing on as it looks to improve how the FSCS is paid for.
While the regulator acknowledged that the current FSCS model was imperfect, it says there is “no obvious solution” to keep all stakeholders happy.
FCA director of policy David Geale says: “The FSCS plays a key role in ensuring that consumers can use financial services with confidence, but this comes at a cost to the industry. We know that both the size of the cost and its allocation between firms carrying out different activities are controversial topics.
“There is no obvious solution that will satisfy all stakeholders – if there was we would already be using it. However, the system can certainly be improved, and that is what we are aiming to do.
“We are keen to have a wide-ranging debate of the issues and to hear from as many stakeholders as possible.”
The FCA published its long-awaited consultation into FSCS reform in December. The regulator is considering whether to risk-rate firms’ FSCS contributions and increase contributions from providers.
The FCA is also weighing up intervention in the professional indemnity insurance market, for example through introducing mandatory wording on statements.
Geale says: “The Financial Advice Market Review recommended that we look at the professional indemnity insurance market for adviser firms, and we are currently doing this. Our starting position is that the FSCS should be the fund of last resort, to be called upon only once other sources such as indemnity insurance have been exhausted. However, in many cases we have found that insurance does not perform that role if a firm becomes insolvent.”
“We are interested in exploring whether the FCA should seek to define in more detail the kind of PII that firms should be required to hold, and the impact on firms and consumers if we did this.”
The consultation closes on 31 March 2017.