The Association of Professional Financial Advisers has supported most of the proposals for reforming the way the Financial Services Compensation Scheme is funded - but wants more radical change.
The trade body has stated the Financial Conduct Authority’s proposals do not go far enough to tackle the root causes of the reason advisers are paying out more to fund the FSCS.
According to Apfa, more should be done to reduce the amount of compensation claims in the first place, such as a tightening of the regulatory framework for unregulated products, which have historically generated huge amounts of complaints.
Among the proposals being put forward by the FCA are more provider contributions to the FSCS and a reduced number of funding classes.
Chris Hannant, Apfa’s director general, said: “We are very much in favour of provider contributions as providers have a role to play in the distribution of their own products and should take on some of the responsibility, particularly in light of the product governance requirements under Mifid II.
“However I believe that reducing the amount of compensation should be a priority and that more can be done to prevent consumer losses in the first place by tightening the regulatory boundaries around unregulated products.”
Apfa was also concerned about the introduction of mandatory terms for professional indemnity insurance, which all advisers must have in order to trade.
When it published its proposals, the FCA questioned whether the PI insurance market was working.
It acknowledged there are few providers in the market and some advice firms struggle to purchase appropriate cover.
The FCA said it was considering introducing mandatory terms for PI insurance, such as requirements to have run off cover and restricted use of limitations.
But Mr Hannant said: “If the PI market is not working effectively, this is because it is responding to the market conditions it finds.
“It is difficult to blame PI providers for building in exclusion clauses and high excesses when they are faced with insuring areas where liabilities are uncertain as a result of changing regulatory expectations and unpredictable FOS outcomes.
“The solution therefore is not to try to force the insurance market into providing more effective cover through mandatory terms, but to resolve the root cause of the problem.”
damian.fantato@ft.com
