Regulator called on to weed out bad guys

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Regulator called on to weed out bad guys

This morning (January 31), the Financial Services Compensation Scheme (FSCS) announced the life distribution, pensions and investment intermediation sector will be expected to pay a levy of £240m next year.

Of this, £65m will be shouldered by providers for the first time, leaving advisers with a £175m bill.

This followed the previously announced £69m supplementary levy to be collected due to mounting Sipp claims.

The FSCS said the amount had dropped from last year because it will cover the full period of 12 months, unlike last year’s levy which covered a period of only nine months.

But Ian Lowes, managing director at Lowes Financial Management, said despite the levy being spread across a wider period the fees were continuing to increase from the perspective of "honest and reputable financial advisers", likening it to a tax being applied on the industry.

He said: "It is unfortunate that we are paying into a scheme, which increases our costs unduly and potentially increases costs to end clients, when a large proportion of the issues arise from firms investing client monies into high risk, unregulated actives.

"More should be done by the regulator to identify these firms and ‘tax’ them accordingly, rather than the whole of the rest of the industry, following their demise."

In its initial forecasts for potential claims volumes for the next year, the FSCS predicted a £516m levy for the whole of the financial services industry.

Martin Bamford, managing director at Informed Choice, said this was an "outrage".

He said: "It is further indication that financial services’ regulation is failing, with good advisers continuing to carry the burden of funding compensation costs for the clients of bad advisers."

Mr Bamford suggested "earlier and more decisive" intervention by the Financial Conduct Authority could dramatically reduce the costs involved.

He said: "It’s important to remember that FSCS levies are paid, indirectly, by consumers of good financial services firms.

"There’s no motivation for better regulation in an environment where the polluter never pays."

Separately the regulator is consulting on the proposed management expenses levy, which is ring fenced for the cost of running the FSCS rather than compensation.

The regulator expects this to be set at £79.6m for the coming year.

But Mr Lowes questioned whether the FSCS was run as efficiently as it could be.

He said: "It would not be reasonable to suggest not, given that it isn’t a business but you have to question how many millions could be saved if the scheme had to fight for the funding because at the moment, whatever they spend and pay-out, they simply go and collect from the industry, who have no choice but to pay.  

"In my limited experience of the scheme in operation, I have seen little evidence of a culture that seeks to minimise the costs to those that fund it."

Derek Bradley, founder of Panacea Adviser, said he found the method of funding the financial services industry so flawed it required a complete overhaul.

Mr Bradley has recently suggested a funding model which would see all firm’s in the industry pay a "simple percentage of turnover" to the FCA each year to cover the entire cost of delivering regulation.

Under this model each firm would pay the same percentage of their turnover irrespective of their risk, in what Mr Bradley hoped was a fairer method of funding.

He said: "It is all well and good suggesting that the polluter pays from a compensation point of view, but the reality is they cannot because the pollution has proved so toxic, they just died along with everything else in that murky pond.

"In other words, the death of the polluter means they can never pay."

rachel.addison@ft.com