Providers would have paid up to £50m more a year towards the Financial Services Compensation Scheme levy over the past five years under the Financial Conduct Authority’s new proposals.
This morning the FCA set out three options for redesigning the way the levy is funded, with providers paying more towards it under every planned change.
At the moment providers only pay when if the compensation is directly related to their or their cohort's business practices, or if the FSCS’s funding for another subclass has exceeded its limit.
But the FCA is now proposing that they should pay from the first pound.
It has also proposed grouping advice funding classes in different ways.
On average in each year between 2011 and 2016 providers paid £92m towards the FSCS.
Under the first and most radical option – where all advisers could be in the same class – they would have paid £135m instead.
This offsets a reduced adviser contribution from £168m to £123m.
The biggest increase would have been for life and pension providers, who would have paid £22m as opposed to £8m while investment providers would have paid £12m more.
Hugh Savill, director of regulation at the Association of British Insurers, criticised the FCA’s proposals.
He said: “The FSCS is a vital safety net in case of the failure of a financial services firm and insurers pay a significant contribution towards it. It is worth noting that no UK insurer has gone bust for many years.
“We are very concerned at the proposal for insurers to bear additional costs to guard against failures by intermediaries such as brokers and advice firms – something insurers have very little direct influence over.
“We see no justification for the blurring of responsibilities in this way. We will be engaging fully in the consultation, with a focus on challenging the rationale behind this idea.”
Despite being less radical, the second and third options would see providers pay more.
The second, which sees life and pensions advisers grouped together with their investment counterparts, would have seen providers pay £139m while advisers would have paid £117m.
Meanwhile the final option involves leaving the fund classes as they currently stand but including provider contributions.
This option would have seen providers contribute £139m while advisers would pay £119m.
In the second scenario life and pension providers would also take the biggest hit, with a £22m increase a year while in the third scenario investment providers would see the largest increase, paying £23m more.
Chris Hannant, director general of the Association of Professional Financial Advisers, said: “Apfa welcomes FCA proposals as a step forward.
“The burden shouldn’t disproportionately fall on financial advisers. I am disappointed that it will take longer to bring this into force, but it is better that we get this right for a sustainable long term solution.
“It is good to see that the FCA acknowledge that this should not solely be an exercise in cutting the cake, but it is also essential to look at the scale of the levies.”
