The proposals in the FCA’s consultation paper on Financial Services Compensation Scheme reform are getting a cautious welcome. It does appear that the FCA have listened (a little) which is cause for some celebration. However, I see no prospect of seeing reduced bills coming to my inbox. Their proposals simply don’t go far enough.
Increased contributions from providers are most welcome but I see this being used to increase the scope of the FSCS, not to lessen our burden. There are several suggestions for extending consumer protection, one of which would have increased compensation payments between 2010 and 2014 by £168m.
My view is they should first be looking for appropriate reductions in scope, particularly the high risk areas. They state that one third of claims value are linked to “non-mainstream pooled investments”. Given the ban on promoting these to retail investors, surely the next logical step is to exclude them from the FSCS?
Experienced or professional investors should have a higher caveat emptor threshold than retail, and with appropriate warnings and notifications from both distributor and provider, the risk of non-mainstream investments should sit firmly with the investor.
This principle dovetails with the concept of a product levy. A product levy is far simpler than risk rating advisers and the quantum could vary depending upon the risk rating. Those outside the FSCS scope would have zero levy. This has the advantage of educating consumers and promoting the existence of the FSCS which will further enhance consumer confidence. Yet this is dismissed as a new tax that would require legislation. What is the current levy if not another tax?
The proposals for reform of the professional indemnity insurance market are pie in the sky. How can they not understand that there would be a much healthier PII market if the regulatory regime was fit for purpose? PII underwrite their risks properly. Rather than interfering in their processes they would do better to commission their advice.
Fiddling around with the funding classes merely creates winners and losers and does not improve sustainability. If advisers come out winning then I won’t complain but the increased scope proposed will, I fear, wipe out any benefit.
These proposals are mere sticking plaster and won’t solve the problems. The adviser population is aging, the market is going restricted, smaller firms are continuing to sell out to consolidators, we are not attracting young blood and the barriers to entry are depriving us of new, innovative entrepreneurs. The FCA needs to look at itself and understand that the FSCS problems are largely as a result of over burdensome yet ineffective regulation. We need to continue to make this point at every opportunity.
Paul Beasley is Richmond House Group managing director and author of a petition in protest against rises in the FSCS levy