Mutuals hit hard where it hurts by FSCS levy

Tony Hazell

Tony Hazell

Financial advisers who complain about contributing to the Financial Services Compensation Scheme might want to consider the £357,000 payment just made by Hinckley & Rugby Building Society.

Chief executive Chris White is, not surprisingly, very unhappy. He said: “The scale of our mandatory contributions to a scheme that mops up after other bodies’ mistakes is staggering. Our relative share of this enormous bill bears no relation to the relative risk to our savers.”

Well said. In the past five years the society’s members have contributed £1.15m to the FSCS – a sum that could have boosted every saver’s interest rate by 0.25 of a percentage point for a year.

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This year’s bill is more than double the £175,000 the society was forced to contribute last year.

If these payments are based on risk then an actuary somewhere is doing the wrong sums.

Hinckley & Rugby has mortgage arrears of £22,000 from a mortgage book of £442m.

What has it – or any other building society – done to deserve this? Unlike financial advisers, no building society has ever dumped its liabilities on to the FSCS and launched a phoenix firm.

When Chelsea came a cropper it was taken over by Yorkshire as was Norwich & Peterborough. Others were swallowed by Nationwide.

Throughout the recent crisis every building society that got into trouble was rescued by a larger society without recourse to the FSCS, something that cannot be said of the banking or advice sectors.

Yet in the past five years societies have paid £533m to FSCS.

When advisers look for someone to blame for their FSCS bill they target commentators, regulators, the ombudsman – in fact at anyone except fellow advisers who have let their sector and investors down.

There needs to be a safety net for savers and investors but the payments should bear at least some relation to the realistic relative risk of each sector posed by each sector.

As it is, Hinckley & Rugby expects to face a bill in 2014 of at least £350,000. That is money taken from savers who have chosen a building society because they want to minimise the risk to their savings.


Way off the mark

Days before having the party whip removed for his ill-considered comments on untidy women, Godfrey Bloom, UKIP’s financial service’s spokesman, lashed out at the Financial Ombudsman Service.

He branded the lack of financial qualifications among staff at the Fos “immoral”.

Mr Bloom said: “Anybody who is adjudicating or auditing should not only be as qualified as the people they are inspecting, they should also have at least five years of practising experience.”

These comments seem to have gone down well with financial advisers many of whom, I suspect, have UKIP sympathies. But they do not stand up to the slightest scrutiny.