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FCA chief: Lockdowns a ‘tipping point’ for small advisers

FCA chief: Lockdowns a ‘tipping point’ for small advisers

The chief executive of the City watchdog has hinted that many small advisers, as well as other smaller financial firms and self-invested personal pension (Sipp) providers, will struggle to cope during the second lockdown.

At his first appearance before the Treasury Select Committee this afternoon (November 4), Nikhil Rathi, chief executive of the Financial Conduct Authority as of last month, said ongoing issues with these firms will see them struggle to make it through the pandemic.

Mr Rathi said: “There are issues with a number of small financial services firms, small financial advice firms and Sipp operators [...] so there are certain areas where there are pressures.

“But there is a generalised economic challenge and so firms which were not doing that well before crisis hit - the first lockdown and now the second lockdown may be the tipping point for them.”

Sipp providers in particular have suffered a series of high-profile setbacks in recent years, with many going into administration and subsequently defaulting at the Financial Services Compensation Scheme (FSCS) after proving unable to afford the claims brought against them.

It has previously been suggested that a regulatory model that moved away from historic Sipp claims could help reduce the FSCS levy.

PI to solve levy crisis in ‘two to three years’

The Select Committee meeting also saw Mr Rathi grilled on the rising costs of the FSCS, which he said could be solved by higher levels of professional indemnity insurance for “riskier” firms, but only over a two to three-year time horizon.

Chairman of the committee, Mel Stride, said it had received a “huge amount of correspondence” from financial advisers on the subject, with some telling MPs they feared they would go out of business.

Mr Rathi said the regulator had also had dialogue with a number of trade associations and groups.

He added:  “Clearly this puts a burden on the financial adviser community. Overall, we see that for the majority of advisers it's a small portion of their income but we can see the strain it puts on specific firms.

“There are other solutions worthy of exploration, including insurance for financial advice firms too.”

Mr Rathi explained the solution would involve riskier firms paying higher premiums, which would mean that “when there is a failure there is insurance that avoids the bill falling onto the FSCS”.

The FCA floated such a solution in its Call for Input paper published earlier this year (September 15).

Mr Rathi noted there were concerns the PI market was currently not functioning “as effectively” as the regulator would have hoped, but said it could see insurance being the “solution” to the levy issue within two to three years.,

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