Financial Conduct Authority  

FCA reveals it has no plans to revisit FSCS funding

FCA reveals it has no plans to revisit FSCS funding

The City watchdog has revealed it has no plans to revisit the funding structure of the Financial Services Compensation Scheme, despite its chairman warning the system needed a restructure last month.  

In its final fees and levies for 2020-21, published today (July 2), the Financial Conduct Authority admitted it was aware of industry concerns surrounding the rising compensation levy, but said it currently had no plans to revisit a review of the lifeboat body's funding structure. 

It follows a warning by Charles Randell, the FCA's chairman, last month that the already "unacceptable" levy was likely to increase as a result of the coronavirus crisis.

The FCA boss said the system needed to be redesigned so "polluting firms" in the financial sector paid the bill for high risk and unsuitable investments, not "well-run firms" via the compensation scheme. 

But in today's policy statement the FCA regulator said: "Although this is outside the scope of the consultation, we are aware of concerns about the rising compensation levy.

"The allocation of the compensation bill and how it is distributed amongst levy payers was subject to an extensive funding review during 2016 – 2018 which went through our usual consultation process. We do not currently have plans to revisit this."

The comments were made in response to a stakeholder's calls for the FSCS levy to be based on operating profit rather than turnover and a limitation period on compensation claims to be introduced. 

The FSCS levy to be shouldered by advisers in the coming year has increased by £16m to £229m, predominately as a result of an extra £44m set aside to meet claims for misleading advice against the collapsed London Capital & Finance.

The FCA said today it was working with the FSCS to "prevent future failure and ultimately reduce compensation costs in the long term".

'Not immune'

In today's policy statement the City watchdog also denied calls to grant larger advice firms, which pay more than £10,000 in annual fees, a payment extension on this year's regulatory bill despite coronavirus pressures. 

In April the FCA revealed it intended to extend the timeframe in which medium and small firms could pay their regulatory fees this year from two months to 90 days, in light of the Covid-19 pandemic. 

But in today's document the regulator refused calls to apply this same extension to larger advice firms, arguing it had to balance relief alongside its "statutory objectives and financial commitments".  

The FCA has categorised medium and smaller firms as those who will pay fees and levies in 2020-21 of less than £10,000.

But this £10,000 threshold includes all fees and levies paid to the FCA, PRA, the Financial Services Compensation Scheme, the Financial Ombudsman Service, Money and Pensions Service, Financial Reporting Council and under the illegal money lending levy.

The FCA said: "However, most [stakeholders] called for us to apply the extended payment terms to large firms...overall, they highlighted that larger firms were not immune from the impact of the crisis on businesses within the above sectors.