Regulation  

Poor PI could force advisers to hold FSCS cash reserve

Poor PI could force advisers to hold FSCS cash reserve

The Financial Conduct Authority is considering whether to force advisers to put money aside for the benefit of the Financial Services Compensation Scheme.

It is among the ideas put forward by the FCA this morning to reduce the size of the bill the bulk of financial advisers pay towards the FSCS.

The FCA has said it is considering two ideas: either requiring firms with professional indemnity insurance exclusions to hold an amount of capital in trust for the benefit of the FSCS or requiring firms to take out a surety bond to cover claims in the event of their failure.

This morning the FCA has published a consultation paper on its plans for reforming how the FSCS is funded, following its initial consultation last year.

The regulator is consulting on three proposals: merging the life and pensions intermediation funding class with the investment intermediation funding class, requiring product providers to contribute around 25 per cent of the compensation costs which fall to the intermediation classes, and moving pure protection intermediation from the life and pensions class to the general insurance distribution class.

The FCA said: “This option reduces volatility but retains some affinity between firms in the new classes.

“Merging the life and pensions and investment intermediation funding classes and introducing provider contributions also reduces the overall volatility of the bill for firms in that class, and reduces the risk of the retail pool being triggered due to the increased funding capacity of the class.”

The FCA is also consulting on increasing the FSCS compensation limit for investment provision, investment intermediation, home finance and debt management claims to £85,000.

It has also published details of rules it is introducing, including the introduction of FSCS coverage for debt management firms and applying FSCS protection to advice and intermediation of structured deposits.

The regulator has also confirmed its intentions to introduce additional reporting requirements to allow it to continue its research into whether risk-based levies would be viable.

It will mean that when advisers complete their Retail Mediation Activities Return, they will be asked whether they offer, recommend or sell any non-mainstream pooled investments, non-readily realisable securities, contingent convertible instruments, CoCo funds or any mutual society shares.

damian.fantato@ft.com