Bailey pushes to extend scope of FSCS review

Bailey pushes to extend scope of FSCS review

The chances of a product levy being introduced have been increased by the Financial Conduct Authority’s new chief executive widening the scope of the Financial Services Compensation Scheme levy review.

This is according to Keith Richards, chief executive of the Personal Finance Society, who met with the FCA's Andrew Bailey recently and now believes the review of the way the FSCS is funded could explore more options than previously suggested.

Earlier this year - before Mr Bailey joined the regulator - the FCA was understood to not be considering a product levy because its introduction would require the introduction of legislation.

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The current FSCS funding system sees advisers pay levies to cover the cost of compensation related failed firms within their cohort.

Last week, pension advisers were told they will almost certainly be levied by the Financial Services Compensation Scheme again this financial year, as bad self-invested personal pension advice continues to dog the sector.

There is also a risk mortgage advisers will be asked to pay more to deal with a higher number of claims.

An alternative to this approach to funding the compensation scheme is a product levy, which is popular among advisers and would be attached to the transaction and sale of product.

A product levy would be added to the price of the product and paid by the consumer.

Mr Richards said: “I had a one-to-one with Andrew Bailey recently and I was really pleased about just how keen he is to extend the scope of the current review.

“It seems the regulator and HM Treasury have been listening to the feedback.

“I think we will see a much more positive recognition that more needs to be done.”

Advisers are angry about the FSCS levy arguing it is an ever increasing tax on them doing business and forces trading advice firms to pay for the bad advice of firms forced to shut up shop under the weight of compensation claims against them.

Last week's announcement from the FSCS that it is expecting claims linked to life and pensions advice to cost much more than it thought earlier in the year, with this class of claim now expected to cost £136m for 2016 to 2017, an increase of 39 per cent, sparked outrage.

The FSCS stated it would have to raise more cash because of a "more rapid growth" in claims relating to self-invested personal pensions, particularly those investing in high-risk, unregulated investments.

Paul Holiday, a financial adviser with Norwich-based Greensky Wealth, said: "Of our fees this year, 80 per cent was towards the FSCS and we have not even had a complaint against us or sold any of the products. We don't think it is fair.

"A product levy could be a fairer way of doing it."

Jeremy Edwards, a financial adviser with Cambridgeshire-based Martin Redman Partners, said: "I struggle with the idea of what difference a product levy would make.