Last week, I speculated on the regulator consulting about firms putting ‘winding-down’ plans in place, and asked whether the Financial Conduct Authority (FCA) was expecting Armageddon.
A few days ago, the FCA stated that their review of financial services compensation scheme (FSCS) funding would preclude a product levy, so you do have to wonder. Their objection – that a product levy would require new legislation – is about as strong as a chocolate fireguard.
One of the FCA’s key responsibilities is to maintain stability in the financial sector, and, as the FSCS levy represents a real and present danger to every firm involved in the provision of financial advice, you would expect them to have a key focus on this issue.
You would also expect the FCA board to demonstrate a determination to find a more reliable and less damaging solution for the industry and consumers, not to mention one that is significantly fairer than the current grotesque system.
It is very welcome; this long overdue review of FSCS funding having been previously promised and then deferred. However, for the FCA to simply say a product levy is outside the scope of the review, is not acceptable. If we are to have a genuine review, every option should be properly and fairly considered.
The recent comments from FSCS chief executive Mark Neale are more encouraging as he stated it is important there is a broad consensus across the industry, that the levy is fair and that good support from the industry is underpinned by a sense that the way costs are shared is reasonable.
He also points out that supporters of a product levy need to demonstrate how a product levy would work in practice and whether it would avoid unfairness.
This is a fair challenge, because whatever method one adopts to fund the FSCS, it is certain to be unfair, as by definition the firms that caused the losses have gone out of business, so it is impossible for them to pay the FSCS costs.
What is needed is a solution which spreads the unfairness over the widest possible collection base, so that the cost for nobody is significant and it becomes no more than a slight irritant for the many.
This is why for the FCA to discount a product levy or similar broadly based funding model at the outset is unacceptable, and why I have argued for so many years that this issue must be properly addressed.
We need to ensure the current review of the FSCS funding considers every option if the FCA is to solve what is currently a major threat to the continuing availability of financial advice.
Ken Davy is chairman of SimplyBiz