Sadly while the FSCS only implements the rules created for it by the FCA, it can simply say it “was just doing what it was told”. Of course this ignores the close relationship between the FSCS and FCA; if the FSCS wanted things to change the channels exist to make its views known.
However the latest suggestions for reforming the calculation of the levies do perhaps offer a tiny glimmer of light at the end of an exceptionally long tunnel. Attention has focused on the fact that the proposed three-year averaging method would result in a higher levy. Well, of course it would.
Look at the past few years, then predict the car-crashes heading our way in the next three years. It is madness to suggest that the first year’s levy on a three-year average should be lower.
But the whole point of this change, and the success that it represents, is that we finally see the acknowledgement that for the smallest of small businesses, namely the vast majority of adviser firms, cash flow is critical. To keep sending bills at random intervals expecting payment within 30 days makes business planning and investment in new staff and systems impossible.
The FSCS being allowed to take this longer view and provide greater stability in its calculations and invoicing will create a higher initial invoice, but should mean fewer (or preferably no) interim levies.
But overall bills will remain inappropriately high. The number of firms reduces, increasing the liability on the others. Phoenixing and leaving liabilities behind remains a strategy which, in spite of protestations to the contrary, the FCA shows no desire to block. Finally, and why support for and the success of the Capita legal action is critical for all adviser firms, while the FCA continues to make advisers (whether ‘good’ or ‘bad’) pay for product providers’ failings, liabilities will always end up on your doormat.
However any reform of the FSCS will result in higher bills for adviser firms, at least in the short term. If we want the system to change – and we all do – there will be a painful period when good firms, which are trying to survive and prosper in the post-RDR world, will have to bite the bullet until a system which makes departed firms pay for their own failings becomes sustainable.
Gill Cardy is managing director of the IFA Centre