The chief executive of the Financial Services Compensation Scheme has pledged the body is working to reduce the levy paid by industry to fund its payouts.
In the FSCS’s annual reports, published yesterday (July 9), Caroline Rainbird said the scheme’s ‘Prevent’ work was aimed at reducing instances of firm failure within the industry, which in turn would cut down the cost of the levy.
She added: “We are very aware that without levy payers’ funding and support we would not be able to help our customers.
“It is crucial that we continue to work with the industry to help to reduce compensation costs, avoid financial harm to consumers and maintain confidence in the UK financial services sector.”
The FSCS’s initial forecasts for the levy saw advisers pay a combined £213m towards the levy for 2019/20 — almost 13 per cent more than the previous year.
This total has since increased further when the lifeboat scheme set aside an extra £44m to meet claims for misleading advice against the collapsed mini-bond provider London Capital & Finance, increasing the bill for the advice market by £16m to £229m.
Ms Rainbird insisted she was “listening” to the concerns of businesses within the industry, particularly small firms.
In yesterday’s report she said: “I have listened to the industry’s concerns about the rising trends in compensation costs and recognise the burden this has, especially on small businesses and independent financial advisers.”
Other issues raised in the report included phoenixing — where company directors shut up shop to avoid liabilities only to reemerge elsewhere in the industry.
The FSCS said it has handed 136 cases of potential phoenixing to the Financial Conduct Authority in the year to March.
It also revealed it had paid out £527m in compensation in the 2019/20 year, with £212m of the bill stemming from failed advice firms and discretionary fund managers.
This is not the first time Ms Rainbird has expressed regret and understanding of how the levy affects the advice industry, and chairman of the scheme Marshall Bailey previously hinted to FTAdviser he would welcome a review of its current structure and urged for more discussion over the regulatory set up.
How the FSCS is funded is not set by the scheme itself but by the City watchog.
Charles Randall, chairman of the regulator, 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.
It echoed what many advisers have protested for a long time — that the ‘good guys always pay’.
Advisers also argue the FSCS charges levied on firms — alongside a hardening PI market — are making some advice businesses unviable.