Advisers warn FSCS levy adds to 'extreme pressure'

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Advisers warn FSCS levy adds to 'extreme pressure'
ByRachel Mortimer

Concerns have been raised over the "extreme pressure" the latest Financial Services Compensation Scheme levy could place on advisers, especially in light of the coronavirus pandemic.  

Yesterday (May 21) the lifeboat body announced the levy to be shouldered by advisers in the coming year had increased by £16m to £229m, predominately as a result of an extra £44m set aside to meet claims for misleading advice against the collapsed mini-bond provider London Capital & Finance. 

But the increase has been met with criticism by advisers, who have warned the growing cost could exasperate the financial challenges faced by the industry. 

Ian Lowes, managing director at Lowes Financial Management, said: "I’ve been in the sector far too long to get wound up by such things as the FSCS levy, but that’s not to say it doesn’t frustrate me deeply.

"Time and time again, the cost of failures and crooked activity end up being paid for by those who do things right."

He added: "No self-respecting intermediary would have recommended London Capital & Finance and as a non-regulated investment it should never have been covered by the FSCS and yet here we are paying the bill, with no recourse against anyone – because someone else has final say that we pay."

Mr Lowes warned the increased levy, in addition to the growing cost of professional indemnity insurance and the already challenging economic landscape of 2020, could place some advice firms under "extreme pressure". 

The FSCS bill for the entire financial services industry has increased from initial predictions of £635m to £649m for the 2020/21 year, but cost savings have been made elsewhere, meaning advisers have seen their levy increase by £16m to £229m. 

Time and time again, the cost of failures and crooked activity end up being paid for by those who do things rightIan Lowes

Ricky Chan, director at IFS Wealth & Pensions, said the levy hike was disappointing but "unfortunately all too common to see".

Mr Chan said: "As many advisers are doing their best to look after their clients, especially amidst the backdrop of the Covid-19 pandemic affecting businesses and individuals alike, we’re seeing rising costs in the form of FSCS levies and FCA fees, together with rising professional indemnity insurances costs.

"It’s certainly adding more pressure on small firms and indeed the latest rise in FSCS levy could be the final straw for some."

Mr Chan said the fees rise showed FCA regulation and supervision were failing and the ever increasing FSCS levies were unsustainable, so reform was needed.

He added: "It’s also pretty shocking to see FSCS pay out for unregulated investments by London Capital & Finance, which, to my understanding, did not even have advice permissions."