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Home > Opinion > Ashley Wassall

FSA belligerence on FSCS funding beggars belief

Ignoring IFAs that are being hit by mounting levies is one thing, but to ignore the chief executive of the FSCS itself smacks of arrogance.

By Ashley Wassall | Published Jul 26, 2012 | Regulation | comments

A cursory glance at the adviser commentary on articles or reader response to various stories on this website - or any of our rivals for that matter - gives a fairly unequivocal view that the intermediary community is disenchanted with the regulator under which they serve.

Why? Let me count the ways.

In terms of the way the Financial Services Authority actually regulates, there is a general feeling that the reputation of the sector, and by extension of advisers themselves, is being continually tarnished by scandals involving larger institutions that are not being effectively held to account.

In fact, it would be fair to say that many advisers feel unjustly treated by an invidious system that demands higher standards - and applies larger comparative penalties - for smaller firms than for the larger firms that represent the highest risk.

More than this, though, there is visceral contempt in the sector for the FSA and the wider regulatory machine it controls on the basis of its funding, with many asserting that costs are out of control and representative of a reckless profligacy that is exemplified by large bonuses paid to senior staff.

This is not merely a philosophical objection, it is a natural reaction to a rising regulatory fee base that is squeezing profit from small businesses struggling to adjust to seismic changes and a moribund economic backdrop.

According to research conducted by Deloitte on behalf of the regulator, regulatory fees are going to rise post-Retail Distribution Review and could reach up to £77m across the investment advice sub-sector, with anywhere up to £31m of this having to be funded by firms as it may not be viable to pass this cost through in charges.

Given that FSA research revealed that more than 250 firms’ profit does not even equal their implied FSCS levy, proposing to increase this is unconscionable

In this context, and given the difficult financial climate, the near 16 per cent rise in the FSA budget for 2012-2013 looks wildly disproportionate.

But this is not all, advisers are also faced with mounting Financial Services Compensation Scheme levies relating to major failures in the industry, such as Keydata, Arch Cru, MF Global and now, potentially, Honister, to name but a few.

That in addition to these exceptional costs the fees for the administration of the scheme are rising raises hackles. That advisers are being expected to pay for the above failures despite the fact that many of these firms were arguably not even intermediaries is seen as beyond the pale.

Advisers reported to FTAdviser sister title Financial Adviser in June that they were seeing their levies double this year, with core costs at the scheme rising as well as costs relating to exceptional issues such as those listed above.

Some dislike the basic principle that they are effectively being punished for mistakes they did not make through the system whoever the offending firm or whatever the circumstances. However, the concept of industry funding is probably correct as I for one cannot think of another way of financing the scheme without relying on central government and thus higher taxes.

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