Fund groups balk at FSCS’s ‘unrelated’ levies
Fund management trade body renews criticism of levies on firms to fund FSCS and compensation for failed Keydata products.
The chairman of the IMA has ratcheted up its opposition to current funding for the Financial Services Compensation Scheme (FSCS), saying that asset managers are being forced to pay for the failure of products that are “completely unrelated to fund management”.
Douglas Ferrans, who has chaired the IMA since January 2010, used the trade body’s annual report to voice fresh criticism of FSCS’s funding model, which levies solvent firms to pay for the errors of their insolvent peers.
Fund managers were billed £233m in January 2011 on top of the £93m levied from investment advisers to fund the FSCS’s payouts to investors in Keydata. Advisers have also suffered massive bills from the FSCS for the failures of products or firms which they never recommended to clients.
Mr Ferrans said: “The FSCS remains a critical issue for our industry, which ended up paying a bill of over £200m towards investor compensation to cover products completely unrelated to fund management.
“Since paying the levy we have been working closely with the FSCS to secure the return of at least some of the levy paid by IMA members. Reform of the FSCS remains a key priority for us.
“It is clearly very unsatisfactory that the current system is organised in such a way that we as fund managers are first in line to cross-subsidise compensation in respect of investment intermediaries who have nothing to do with our business.”
Keydata was placed into administration in June 2009 as it was unable to pay a tax bill relating to Isa investments. The FSCS declared the company in default in November 2009 and began paying compensation to investors, for which investment intermediaries and fund managers were charged during the 2010-11 financial year.
Mr Ferrans’s comments come after IMA chief executive Richard Saunders claimed that the FSA’s proposals for reform of the FSCS levy would mean fund managers could end up paying for mis-selling of bank products, but there would be no reciprocal cross-subsidy for banks. In a statement released in July, Mr Saunders called the FSA’s proposals “shocking and astonishing”, adding: “These risks are not theoretical, as demonstrated by past events such as the Keydata collapse or pension and endowment mis-selling.”
However, under the FSA’s proposed revision to the annual amounts firms can pay towards the FSCS, fund managers have seen their maximum contributions fall, from £270m a year to £200m a year. Investment advisers under the new proposals would contribute £150m, as opposed to their current contribution of £100m a year.