The reality is that everyone knows, and independent most observers accept, that the FSCS levy, as currently constructed and funded, is broken.
That it has not already completely collapsed is thanks entirely to the stoic attitude of the financial advice community who, year after year have accepted, and paid, the grossly unfair levies that have been foisted on them. Why then do we have to await further consultations and deliberations before decisive action is taken?
In urging faster action, I am not seeking to detract from the positive elements of the FCA’s recently published strategy paper in which it sets out its plans to tackle investment harm over the next couple of years.
Indeed, what I want to do is to reinforce their plans and, most importantly, highlight the need for them to act with greater urgency on all fronts.
The fact is that this FCA strategy paper is itself based on previous calls for input and the like, along with its own internal information on the causes of consumer detriment.
It is also a reality that the vast majority of the financial services sector, whether advisers or product providers, want to work with the FCA to ensure good consumer outcomes.
Unfortunately, a tiny minority of unscrupulous players on both sides of the equation continue to create horrendous FSCS liabilities through dishonest or reckless behaviour.
The FCA has regularly referred to the dangers to consumers of high-risk products, and do so again in this strategy paper, with the promise that they are going to do something about it.
My question is: when? How much longer are consumers going to be allowed to buy unsuitable high-risk products for which the rest of the financial services sector end up paying through the iniquitous FSCS levy.
Reducing the risks
I have previously put forward two very simple steps which can, and should, be taken without further delay, to reduce the risks to consumers and ultimately the cost of the FSCS.
Firstly, the FCA should establish a small advisory board made up of experienced financial advisers and product providers to informally vet every new financial product that comes to the market. This group’s view could then be fed back to the FCA in order for it to make the final judgement.
This would enable the regulator to quickly define whether a particular product can be sold and advised upon generally or should be restricted to specialist advisers who have the appropriate permissions, capital and experience. This simple process would dramatically reduce the risk of inappropriate products and advice being delivered to consumers.
Secondly, the Association of British Insurers should establish a clearing house where any concerns that a product provider may have about an advice business, an individual adviser, or, of course, a provider, could be pooled.
Using today’s technology and amber and red flags, this would be a low-cost method of highlighting reckless or criminal advice and high-risk products much more quickly and effectively than at present. This information could again be passed directly to the FCA for it to consider and action as appropriate.
This same system could also collate information from whistleblowers to again speed up action by the FCA. We are told that on average it can take two years for a business to be stopped from giving bad, or even criminal, advice. I believe this simple early-warning system could cut that time by at least half with enormous benefits to clients and, of course, delivering similar savings to the FSCS.
The problems have long been identified and, due to the grotesquely unfair system of funding the FSCS, the good guys are still paying for the actions of the reckless and criminal.
This has to stop, the only question is when.
Ken Davy is founder of SimplyBiz and deputy chairman of Fintel
