FCA to review fairness to IFAs of FSCS levy

FCA to review fairness to IFAs of FSCS levy

Fairness for financial advisers will be a key part of the FCA’s upcoming review of the FSCS levy, the regulator’s chairman has said.

Speaking to Treasury select committee this afternoon (21 October), chairman of the FCA John Griffith-Jones and acting FCA chief executive Tracey McDermott admitted the current process of funding the compensation scheme had its flaws.

Mr Griffith-Jones said: “Since the financial crisis talk about the FSCS have been dominated by bailing out the banks but in normal times we don’t expect it to bail out the banks.

“So when we do our review we will have to concentrate much more on the fairness to IFAs than when the FSCS was reviewed last time.”

Treasury select committee member Mark Garnier asked Mr Griffith-Jones what pressure the increase in regulatory costs would put on small regulated companies such as IFAs.

The Conservative MP said: “You have very sensible rules about financial stability for these firms but if they suddenly get hit with an unexpected cost such as a 7.9 per cent increase in their regulatory fees or the FSCS levy...

“At what point do you, by charging them so much money, put them out of business in terms of your compliance requirements?”

Ms McDermott said many of the smallest firms would be protected from some of the steepest rises in regulatory fees.

She said the regulator has not seen people go out of business because of regulatory fees but added people have been approaching the FCA to tell them the current levy system was not sustainable.

She said: “One of the biggest problems with the FSCS levy is that it is lumpy and unpredictable.

“In terms of the data on IFAs specifically, the profitability figures for IFAs show that collectively it is going up but clearly there is an impact and one of the things we have said we are looking at as part of the Financial Advice Market Review is whether there are ways of making that process predictable.

“The good guys are funding the problems caused by the bad guys so we are going to look at that.”

In April the FSCS announced that advisers with pension permissions would face a levy of £100m, up by 75 per cent (£43m) from January’s prediction of £57m, and three times last year’s levy of £33m.

Both Hargreaves Lansdown and St James’s Place have seen their profits hit by the increased FSCS levy, the former seeing an increase of £3.6m and the latter £13.1m.

In June the FCA confirmed its planned 10.2 per cent fee hike for advisers for 2015 to 2016.

Mr Griffith-Jones admitted that regulatory fees, including those to fund the FCA, could not keep going up indefinitely.

He said: “[The increase in FCA fees] has been driven predominantly by additional people and the reason we have additional people is broadly speaking because we have been handed additional responsibilities to deal with, for example the Payment Systems Regulator and the transfer of consumer credit.”