When Dickens’ Oliver Twist famously said “Please, sir, I want some more”, every reader or audience member knew that there was plenty available and his need for ‘more’ should have been satisfied. I feel somewhat the same in respect of the outcome of the Financial Services Compensation Scheme review.
The Financial Conduct Authority has rightly accepted the principle that providers should contribute to the funding of the FSCS. This is undoubtedly fantastic news for all financial advisers, and is a fundamental breakthrough.
I have committed countless hours of debate and argument to getting the current disgraceful funding situation changed, and am personally delighted at this achievement.
Unfortunately, the provider contribution of 25 per cent of the funding costs, while certainly a start, is woefully inadequate and I believe advisers should expect more. I appreciate that any funding of the FSCS is bound to be unfair, and this applies whether it falls on providers or advisers, as there is no practical or proportionateway of getting the ‘polluters’ to pay.
The arbitrary figure of 25 per cent overlooks that, firstly, 80 per cent of claims are already met by advisers or their professional indemnity insurers. Secondly, providers’ market intelligence means they have a much greater likelihood of spotting reckless or criminal activity. In particular, I believe they should set up a clearing house at the Association of British Insurers where concerns could be aired and, if appropriate, passed on to the regulator.
While this would not stop every wrongdoer, it might shorten their operations by many months, saving the FSCS a lot of claims and consumers a lot of heartache.
A further serious concern I have is about the FCA’s proposals regarding changes to the PI insurance market and policy conditions. PI insurers are not charities and, if they are forced to provide cover that is uneconomical, they will simply withdraw from the market and apply their skills and capital elsewhere, as almost happened just a few years ago. Not a situation I imagine the FCA, or any of us, wants to see again.
Overall, I think the FSCS funding review has made real progress and the 25 per cent from providers is a helpful start. Nonetheless, it only warrants two cheers, as much remains to be done if we are to reduce advisers’ FSCS costs to a fair proportion. So, just like Oliver: “Please, sir, can we have some more?”
Ken Davy is chairman of SimplyBiz Group