Financial Services Compensation Scheme  

Advisers warn FSCS levy adds to 'extreme pressure'

Keith Richards, chief executive of the Personal Finance Society, said whilst advisers were supporting clients amid the current crisis it was "frustrating" for the industry to receive an "additional call for cash to fund the FSCS during these unprecedented times".

The professional body boss said: "The current method of funding consumer compensation is unsustainable, which is why the PFS is currently pushing for the Financial Conduct Authority and HM Treasury to relieve the pressure on advisers seeking professional indemnity insurance in the midst of the coronavirus pandemic."

Mr Richards added: "Ultimately what we want to see is long-term reform of the FSCS levy and the professional indemnity insurance market.

"We have proposed a workable alternative way of funding consumer compensation and will continue to engage with the regulator and government about reducing financial uncertainty for advice businesses who want to focus on helping clients achieve financial security."

In response to the levy hike the PFS renewed its call for a four-month grace period for advisers whose professional indemnity insurance falls due for renewal during the coronavirus lockdown. 

Simon Harrington, senior policy adviser at the Personal Investment Management & Financial Advice Association, said the trade body remained supportive of the FSCS and its role in "providing consumers with confidence in making investment decisions".

But Mr Harrington warned Pimfa "retained long standing concerns" about the affordability and calculation of the levy.

He said: "We have previously raised this concern, as well as others regarding the effectiveness and level of accountability within the FCA, both in terms of its supervisory approach and the practical outcomes of that approach. 

"In the context of the current crisis, increased regulatory costs placed on smaller, prudent businesses, in particular, could cause operational issues in the short to medium term."

Mr Harrington said the FCA’s payment extension for regulatory fees from 30 to 90 days would help, but "long standing issues still remain".

He added: "Rising compensation costs attributable to firm failure suggests we may want to look again at the effectiveness of the current supervisory regime.

"This is why we have called fo a wider debate about the future of regulation in the UK that goes beyond the content of the rulebook.

"London Capital & Finance provides a useful case study given that concerns had been raised about them long before its failure, but the FCA only banned the mass marketing of speculative mini bonds to retail customers in November last year."