Product providers could be required to pay a quarter of the Financial Services Compensation Scheme levy costs currently paid by intermediaries, the FCA says.
An FCA consultation paper published today has put forward proposals that product providers to contribute around 25 per cent of the compensation costs that fall to the intermediation classes, a move likely to divide providers between those happy to contribute and those who think it is not their responsibility to pay for sub-standard advice.
The paper also proposes merging the Life and Pensions and Investment Intermediation funding classes and moving pure protection intermediation from the Life and Pensions funding class to the General Insurance Distribution class.
The FCA is also consulting on increasing the FSCS compensation limit for investment provision, investment intermediation, home finance and debt management claims to £85,000.
The consultation paper also contains the final rules for changes to FSCS funding which were consulted on in December 2016, including introducing FSCS coverage for debt management firms, extending coverage in respect of fund management, applying FSCS protection to advice and intermediation of structured deposits, requiring the Society of Lloyds to contribute to the retail pool, introducing additional reporting requirements which will potentially enable the FCA to introduce risk-based levies in the future and amending payment arrangements.
The regulator is also seeking views on other options for reducing harm to consumers by giving firms incentives not to carry out activities which have led to FSCS claims in recent years, and also to reduce the value of claims the FSCS has to meet. It is considering requiring certain Personal Investment Firms (PIFs) – particularly those with exclusions on their Professional Indemnity Insurance (PII) policy – to pay money into a trust account or purchase a bond that would ensure more claims are paid for by firms or their insurers.
ABI director general Huw Evans says: “The FCA’s proposal gets the balance wrong and seems to go against the fundamental principles of FSCS funding – that those responsible for the failures are the ones who pay. Expecting providers to foot the bill for intermediaries they have no control over is entirely misplaced and will continue to be widely opposed by providers.”
Aegon pension director Steven Cameron says: “The FSCS is an important aspect of consumer protection which should give our industry’s customers greater confidence to invest. This benefits providers, fund managers and advisers alike which is why Aegon has always supported providers and fund managers paying a greater share of the levies intermediaries in their sector currently face. It’s important that the way the FSCS funding works reduces the size and volatility of levies well-run, responsible adviser firms face.
“The FCA’s proposal that product providers pay 25 per cent will no doubt split the provider community but should be examined on grounds of fairness and affordability across industry players including fund managers.
“Our adviser research shows a strong support for some form of risk based levies, for example where advisers are involved in higher risk products so it’s important the FCA continues to explore this as well as looking for improvements to the operation of the PII market to reduce the overall claims falling on the FSCS.”
SimplyBiz chairman Ken Davy says: “As anyone who has read my previous comments on this will know, I am supportive of the principle of product provider contributions and measures to reduce overall liabilities, but strongly believe that the suggested contribution is far too low, given that providers have had years of risk free distribution, but have had greatest opportunity to spot rogue advice firms and advisers.”