RegulationDec 2 2015

FSCS disappoints IFAs with take on product levy

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
FSCS disappoints IFAs with take on product levy

The chief executive of the Financial Services Compensation Scheme has said he is “philosophically opposed” to the idea of a product levy.

Mr Neale made the comments to an Apfa meeting and one member of the trade body’s council said his position was “profoundly disappointing”.

He said: “Most of FSCS’ recent compensation costs in the investment field flow from intermediation or advice, not the provision of products.

“If the levy were to extend to products, those that advocate a product levy would need to think about how this would be justified to product providers and to unadvised consumers of those products. Advocates of a product levy would also need to think about how the levy would work if advice were included among the products attracting the levy.

“Advice is not a standard product and comes in all shapes and sizes.”

A product levy is popular among advisers and would be attached to the transaction and sale of product which would be added to its price and paid by the consumer.

Tim Harvey, director of Devon-based HR Independent and Apfa council member, said: “Certainly among those people I have spoken to, the consensus has been overwhelmingly in favour of a product levy.

“It gives a level of transparency for clients that we have at the moment. It would communicate the value of the FSCS far more effectively than a few posters or an advertising campaign. I found the tone of Mr Neale’s argument profoundly disappointing and inconsistent.”

Chris Hannant, the director general of Apfa, said the trade body would be publishing its position on the looming review of the FSCS levy in the next few weeks.

He said: “Certainly Mr Neale is an important person in the debate but ultimately it is the FCA that makes the decision.”

Ruth Wharram, for the FCA, said the regulator has committed to a review of the FSCS levy in 2016 and added that it could not comment on whether it is considering a product levy.

Mr Neale added that a product levy would have to take into account changing levels of consumption in the relevant product markets as well as the amount the FSCS expects to pay out.

Meanwhile, the FCA has also launched a consultation on changes to the FSCS which could add another £5m to its levy.

Its proposals would mean increasing the insurance mediation compensation limit from 90 per cent to 100 per cent for certain claims and making trustees of occupational pension schemes of large employers providing money purchase benefits eligible to claim on the FSCS. It is the latter which could lead to an increase in the FSCS levy.

The 24-page consultation document said: “If a large scheme did suffer a significant loss which constituted a claimable event (eg loss of client money or assets), then the impact could be significant given that the sums invested overall are likely to be larger.

“We estimate, with some significant assumptions, the increase in cost as between £640,000 and £5m a year.”

Adviser view

Simon Mansell, director of Worcestershire-based Temple Bar Independent Financial Advice, said: “If you look at the areas where compensation claims have arisen they are a reflection of the risks inherent in certain types of business. There are certain areas I consider to be too contentious to involve my clients.

“It seems to be reasonable for a levy to be made against those areas of business most likely to result in compensation claims.”