Financial Services Compensation Scheme  

Advisers disappointed at new FSCS levy

Advisers disappointed at new FSCS levy

Financial advisers have said they are feeling disappointed after the latest announcement from the Financial Services Compensation Scheme that it plans to levy the industry an interim levy of about £69m.

The FSCS stated in its Outlook newsletter this morning (November 28) is plans to raise the supplementary levy because of "continuing growth in pensions claims".

It had already raised the maximum levy of £75m for nine months on this sector in April and said it would now need to trigger the retail pool.

Mark Neale, chief executive officer at FSCS, had said: "This will, I am afraid, necessitate a supplementary levy falling on the retail pool. We shall announce the size of that supplementary levy in January."

Self-invested personal pension (Sipp) and other pension transfer-related failures made up 45 per cent of all defaults declared and 83 per cent of resulting claims received during 2018, according to latest FSCS figures.

Scott Gallacher, chartered financial planner at Rowley Turton Private Wealth Management, said the figures should "surely bring into question the current regulatory regime which doesn’t appear to be protecting clients."

He added: "And it’s disappointing that yet again it will be other advisers who pick up the bill for what is in reality the failings of a small number of advisers."

Similarly Martin Bamford, chartered financial planner and managing director at Informed Choice, said: "This interim levy is an unwelcome return to the days of high compensation costs. It represents more evidence of failed financial services regulation in the UK."

He said rather than "allowing firms to mis-sell and then fail, dumping their liabilities on everyone else", more decisive action should be taken by the Financial Conduct Authority to weed out the minority of bad advisers and prevent harm from occurring in the first instance.

He said: "We’ve got a thoroughly broken system of regulation right now, where it’s easier to compensate the customers of failed firms using other people’s money than it is to regulate effectively."

The FSCS is a rescue scheme of last resort which compensates clients bringing claims against firms that have failed. The maximum the scheme pays out on pension and investment claims is £50,000.

But the scheme is industry-funded which means functioning advisers effectively pay out on behalf of those that have failed.

The retail pool is made up of contributions from across the retail classes. Companies registered under investment provision contribute 21 per cent, investment intermediaries contribute 15 per cent, while general insurance intermediaries make up for 31 per cent of the total funds. The remaining 33 per cent comes from companies registered as deposit acceptors (11 per cent), life insurers (7 per cent), home finance providers (5 per cent), general insurers and home finance intermediation (4 per cent each) and debt management companies (2 per cent).

The FSCS funding system is currently being reformed with changes to funding classes being introduced on 1 April 2019. This will require providers to contribute 25 per cent of the levy for the intermediary funding class.