However, it faces a problem. Under current rules intermediaries face particularly high and volatile levies for the funding of the scheme.
The FCA is currently reviewing consultation responses on a number of measures to make the funding model more sustainable.
At Aegon we believe providers and fund managers should play a larger part in funding the scheme, taking some of the burden away from intermediaries.
Advisers are critical to the success of the financial services industry. As the Financial Advice Market Review seeks to close the ‘advice gap’ and make adviser businesses more sustainable, it’s crucial that FSCS funding does not undermine these aims by overburdening intermediaries or pushing up what they have to charge people for advice.
More radically, there’s a strong case for part of the FSCS to be funded from fines levied by the FCA on firms operating in markets covered by the scheme.It’s only right that FSCS costs are shared fairly, with providers and fund managers paying an appropriately greater share where claims are related to product or investment areas where they have a commercial interest.
It’s an important topic and we believe the Government should be prepared to do its bit. We are arguing that a proportion of fines levied by the FCA, which currently go to the Exchequer, should be used instead to fund the scheme, ultimately for the benefit of the industry’s customers.
To inform our response to the FCA’s consultation, we carried out research with 150 advisers and intermediaries who have joined Aegon’s ‘adviser panel’.
Widespread concerns over fairness of the system and the level and volatility of levies shows this consultation is a real opportunity to improve the sustainability of the intermediary sector, one of the aims of the Financial Advice Market Review, with consumers the ultimate beneficiaries.
There’s strong intermediary support for providers and fund managers paying a greater share, something Aegon is championing.
While the FCA has struggled with the technicalities of risk based levies, our research highlights it shouldn’t give up on the idea.
Four in five advisers support this approach, with over 90 per cent believing those involved in riskier unregulated products should contribute more and over 80 per cent saying the levy should reflect a firm’s history of compensation payments.
The strong demand for a move to more risk-based levies could be partly addressed by giving greater prominence to Professional Indemnity Insurance. Intermediaries are supportive of the FCA plans to review the PII market albeit with mixed views on how satisfactory the current PII model is.
Aegon has also put forward alternative approaches to sharing out levies. This might involve lowering the threshold for intermediaries’ levies before calling on the wider retail pool.
This would lend support sooner, when intermediaries face unusually high claims and could also reduce volatility year on year. It’s something to consider as part of the mix.
More radically, there’s a strong case for part of the FSCS to be funded from fines levied by the FCA on firms operating in markets covered by the scheme. Fines are currently paid to the Exchequer subject to the FCA retaining an element to cover certain enforcement costs.
These fines are often a result of failings on the part of regulated firms, which could lead to consumer detriment. There’s a strong alignment with what the FSCS is there to do - to compensate consumers who suffer financial loss as a result of industry failings, where the responsible firm is no longer in business.
This approach would extend the concept of ‘polluter pays’, offering a welcome reduction in the charge on well-run firms for the failings of others.
While FSCS levies might be thought of as an industry issue, if the cost of doing business rises, intermediaries have to pass this onto clients. So if we can reduce the FSCS levy burden on intermediaries, costs for advice and others services could also come down.
This would be welcomed by advisers and customers alike and would go some way to meeting the Government and regulator’s aim of closing the advice gap.
Supporting consumers to access affordable, professional financial advice should be top of our shared agenda.
Steven Cameron is director, regulatory strategy, for Aegon.
