As regular readers of this column will know, I have campaigned for more than two decades for the regulator to radically change how the FSCS is funded.
I was therefore encouraged to note earlier this year that the FCA strongly indicated it recognised the injustice of the current funding method. With the tide against the unfairness gathering momentum, I am now delighted to see a thoughtful and constructive piece on the future funding of the FSCS from Ronnie Taylor, distribution director of Scottish Widows.
For such a respected provider to acknowledge the injustice of the current funding is an important milestone. I believe all of us involved in the advice sector should be very encouraged to see this unfairness being acknowledged, first by the FCA and now by such a major provider.
Mr Taylor's article, which you can view in full on Scottish Widows’ website, recognises that providers have a significant part to play in contributing to a solution. They have the ability to identify and avoid market risks and therefore help to ensure that the FSCS funding falls to a greater extent on those providers and firms creating the liabilities.
Product providers, as well as clients, benefit substantially from the existence of a strong, vibrant and successful financial advice sector. This has previously been recognised by many providers who voluntarily contributed to the FSCS levy to ensure the advice sector was not disproportionately penalised.
It was also clearly acknowledged by the PIA which, within a £100m cap, proposed that approximately 85 per cent should be met by the providers that benefited from the business placed by advisers.
Going forward, it will clearly be important that the core funding of the FSCS involves contributions from providers to ensure their market knowledge is used proactively to reduce the number of calls on the FSCS, combined, where possible, with a higher proportion of costs falling upon those involved in producing or promoting higher risk products.
Sharing costs across the product providers’ value chain, while also using risk-based levies and improvements in professional indemnity cover to change the funding of the FSCS, has the potential to reduce its overall liabilities while dramatically, and rightly, reducing the costs to financial advisers.
My congratulations go to Scottish Widows and Mr Taylor on such a helpful and constructive contribution to this important debate.
Ken Davy is chairman of The SimplyBiz Group
