Ken DavyFeb 26 2020

Time to fight for real and fair overhaul to FSCS funding

Search supported by

They say that imitation is the sincerest form of flattery, so I have no hesitation in urging you to support the latest initiative from the Personal Finance Society.

Unless you have been in hibernation for the past 20 years, you will be aware of the time and effort I have dedicated to fighting for a ‘fair’ funding method for the Financial Services Compensation Scheme (FSCS).

The present method of FSCS funding is fundamentally flawed and grossly unfair.

Even worse, the good companies picking up the bill for the FSCS have no chance whatsoever of spotting what the companies who create the liabilities are doing. 

Indeed, a good business could be in the same building as a bad business, without the slightest chance of knowing that the other is creating potential FSCS liabilities.

Advice companies got a real win recently when the FCA decreed that product providers should contribute 25 per cent towards the FSCS levy. 

I believe this was a direct result of a series of meetings I had on the issue, and means the FSCS bills you receive are now significantly smaller than they would otherwise have been. 

The present method of FSCS funding is fundamentally flawed and grossly unfair.

What has not changed is the fundamental unfairness of the whole system.

This brings me to the important initiative from the PFS. 

The body is urging advisers to write to their MPs promoting what I believe is a simple, fair and effective solution. 

The funding solution proposed is that there should be a very small levy on the £9tn of assets managed by the UK investment industry. 

Indeed, it has calculated that a levy of just 0.006 per cent would be sufficient to meet all the existing compensation requirements, as well as providing the funding for consumer education through the Money and Pensions Service.

Not only is this a fantastic initiative by the PFS, I can also vouch for the maths, as working with an actuary on an identical solution some five or six years ago, I arrived at a levy requirement of less than 0.01 per cent to achieve the same objective. 

This formed an important part of my argument, which ultimately resulted in the 25 per cent FSCS contribution from providers.

I am therefore delighted for this concept to be copied by the PFS and I urge you to get writing those letters to help build the momentum needed to get rid of the FSCS’s current grotesquely unfair funding system, once and for all.

Ken Davy is chairman of SimplyBiz Group