We use cookies to improve site performance and enhance your user experience. If you'd like to disable cookies on this device, please see our cookie management page.
If you close this message or continue to use this site, you consent to our use of cookies on this devise in accordance with our cookie policy, unless you disable them.

Close
In association with

Home > Regulation > UK Regulation

Time for clear thinking on FSCS funding

An opportunity exists for IFAs to do away with the FSCS’s discredited and unfair funding model.

By Ken Davy | Published May 09, 2012 | comments

If Victor Meldrew were to read the FSA’s Consultation Paper (12/7) on the proposed administrative changes to the FSCS his exclamation of “I don’t believe it!” would be the understatement of the year.

As if the current rules for funding the FSCS were not disastrous enough for IFAs the proposals in this catchingly titled FSCS: Changes to the Compensation Sourcebook create the prospect of a nightmare scenario. Astonishingly this paper proposes that the directors and managers of a defaulting firm and their close relatives should be eligible to claim on the Financial Services Compensation Scheme. So not only will the sound, honest IFA firms have to pay the cost of compensating the “clients” of failed and defaulting firms but if this proposal is allowed to go through they can also look forward to potentially compensating their dishonest, feckless or reckless competitors whose actions created the default in the first place.

The paper also proposes other changes such as paying compensation to possible claimants without receiving a claim request and making payments without verifying a person’s genuine entitlement. It then glibly suggests that levy payers, who it recognises will have higher costs, can pass these costs on to clients in higher charges. If you do nothing else today I urge you to take a look at this document (www.fsa.gov.uk/static/pubs/cp/cp12-07.pdf) and in particular page 11. If after having read it you share my view please respond to it by writing to Bridget Moss of the FSA (on cp12_07@fsa.gov.uk).

What this paper also throws into sharp relief is the now desperate need for a root and branch reform of the FSCS and in particular its funding model. Much of the anger of IFAs which is directed at the FSCS when another load of faceless demand notes drop out of the blue into the inbox or through the letterbox is however misdirected. The reality is that to a very large extent the much maligned FSCS staff is simply firing the bullets in a gun loaded by the FSA. Another topical way of putting it would be that the FSCS is simply rearranging the deckchairs on the Titanic while the FSA have provided the iceberg.

I have argued for many years that the funding model of the FSCS is fundamentally flawed relying as it does on the clients of failed firms being compensated by the good firms who have had absolutely no way of influencing, controlling or preventing the failures they are forced to pay for. No taxation without representation is an old but true adage and the time has come for the inherent and unjustifiable unfairness of the FSCS funding model to be brought to an end. In addition it should be noted that this unfairness is exacerbated by the structural failings within the current operation of the FSCS. This has left IFAs picking up the liabilities for erstwhile product providers and other businesses which are totally unrelated to that of IFAs.

Page 1 of 3

visible-status-Standard story-url-FA_davyFSCS_260412.xml

COMMENT AND REACTION
Most Popular
More on FTAdviser
FTA jobs