Fresh calls have come from the chief executive of the Financial Services Compensation Scheme over the need to assess the possibility of risk-weighed levying.
Mark Neale told FTAdviser that he very much hopes fairness around the way the levy is pooled across the industry will be covered, noting that the Financial Conduct Authority’s funding review of the FSCS this autumn would look at this topic.
“I think one of the complaints that I hear most frequently is from businesses that say ‘we have a very low risk business model and we end up paying the bills for much higher risk businesses’, I think that is a legitimate issue which the funding review should address.
“In one or two blogs I have suggested that maybe the answer to that is to look carefully at how we can risk weight our levies, which would mean you would take account of the riskiness of business models in determining firms’ liability for our levy.
“That is something that I think we should look very carefully at.”
He added that clearly this would require the FSCS to come up with a transparent, objective way of assessing risk, which the industry buys into.
“It is no good moving from one funding mechanism in which the industry lacks confidence to another funding mechanism in which the industry lacks confidence... I’d like to see the industry taking part in this debate.
“Those firms which say ‘it is not fair our business model is very low risk’ - how would they advocate that we take account of risk?”
In September 2014, Mr Neale stated that the industry needed a clear and objective basis for measuring risk, which the industry can broadly agree on.
At that time, he went on to place emphasis on retaining the support of the industry, explaining that: “One aspect of retaining the industry’s support is trying to ensure that the industry sees our funding arrangements as broadly fair.”
Elsewhere, Mr Neale talked about the possibility of pre-funding the system, something which he has raised as a strong possibility with FTAdviser at the same time in September 2014.
This method would help smooth out the ups and downs of funding, something which he said was particularly hard on smaller business, which find the unpredictability of levies difficult to cope with under the pay as you go system.
“We’ve had lots of claims arising from the mis-selling of investments in Sipps, that has led to a hike in the levy, if we were pre-funded we would be levying a predictable amount year on year to build up a pre-fund and we could draw on that fund to meet these sudden increases in the demand on our protection.”
Mr Neale said that both the Treasury and regulators would be involved in making a decision, but that it was very important that the industry expresses a view.
“I can express a view that pre-funding would smooth the demands on the industry, but I really think it’s up to the industry also to say whether it would prefer a pre-funding regime.”
ruth.gillbe@ft.com
