Tenet’s chief executive has hit back at the regulator’s refusal to consider introducing a product-based premium as a means of funding the Financial Services Compensation Scheme.
Martin Greenwood said: “Their apparent dismissal of the proposal, on the grounds that it would require the drafting of new legislation, doesn’t make any sense. How can that possibly be cited as an excuse for not reforming something so urgently in need of improvement?
“The current system is fundamentally flawed, so if a much fairer, feasible alternative is available, it should be investigated,” he continued, adding: “The end surely outweighs the means?”
At the end of May, Personal Finance Society chief executive Keith Richards said meetings with the Financial Conduct Authority revealed the introduction of a product levy would require legislation, putting it outside the scope of the current review.
Alternative funding models for the consumer protection scheme suggested by HM Treasury, the Financial Conduct Authority and financial services firms were published in the Financial Advice Market Review final report in March.
Last month, FSCS chief executive Mark Neale re-stated support for a risk-based levy, where firms more likely to generate complaints pay higher levies, but has previously stated his opposition to introducing a product levy.
Mr Greenwood argued costs are constantly increasing and the impact on small and large firms is becoming untenable. “Even more frustratingly, the levy is currently being paid by those who did not cause the problem, the innocent are paying for the guilty.”
He rejected the promise to look at ‘smoothing out’ levy demands, stating it completely fails to address the underlying problem, while a risk-based solution “would simply result in people trying to manoeuvre around any obstacles and ironically encourage consumers to be reckless – in the knowledge that if everything backfires, they’ll simply get their money back.”
Instead, Mr Greenwood proposed the FSCS should be funded by a premium charged on products and investments, which would be more rational and transparent than advisers continually having to factor on-going increases into their fee structures.
“Similar schemes work perfectly well in other sectors, such as the Pension Protection Fund,” he added. “Adopting one in financial services would fund the compensation scheme and support education initiatives aimed directly at the consumer.”
Tenet and the Association of Professional Financial Advisers have worked with Alan Meale, MP for Mansfield, to recently table Early Day Motion 91 entitled ‘Regulatory levels and access to advice’.
This asks the government to take steps towards a more sustainable advice sector and calls upon the FCA to re-consider a product-based levy as a solution to fund the FSCS.