‘Bitter pill to swallow’: advisers react to FSCS interim levy

The £92m extra bill announced today (November 25) by the Financial Services Compensation Scheme, of which £8m will be footed by advice firms, has been met with resentment from advisers and others in the profession and raised concerns that the industry is not being listened to.

Adviser trade body the Personal Investment Management & Financial Advice Association had put its weight behind growing calls for reform of the FSCS funding system this year and branded the additional bill “particularly disappointing”.

Liz Field, chief executive of Pimfa, said: "This means more customers have been let down and had no choice but to use the compensation scheme. 

“These costs are a particularly bitter pill to swallow given the ongoing Covid-19 crisis and the impact that it continues to have on the viability of a number of businesses that make up our membership.” 

Ms Field said while the trade body “strongly supported” the role of the FSCS in protecting consumers, the latest increase further underlined the need to “urgently get these costs under control”. 

Steve Carlson, of Carlson Wealth Management, agreed, saying it was “frustrating” that good advice firms who had done their job properly were “yet again” going to pay more money to fund the “bad advice given by firms who didn't.”

The same was true in the mortgage space. Robert Sinclair, chief executive at the Association of Mortgage Intermediaries, said the levy increase, of which £2m will be shouldered by mortgage brokers, came at the “worst possible time”. 

Mr Sinclair said: “Mortgage and protection firms will have to contribute their share of £2m based on their mortgage income turnover and their share of the £29m in the GI distribution class.

“This is the same amount again as they paid for FSCS in their 2020 FCA invoice for mortgages and 160 per cent of the amount for GI.”

The additional levy follows an increase in pension advice claims and other high profile firm failures. The sum required will be split among all firms in the industry because the FSCS has already reached the maximum amount it can charge advisers in any given year.

Surpluses across other classes will contribute £33m and the scheme will also raise an additional £51m from the other classes, including those in the retail pool. 

System overhaul

Tim Harvey, managing director at HR Independent, said levying an additional cost on financial products that have FSCS protection would be a better system to fund compensation costs.

This, he said, should be paid by the consumer, which would “enhance the value of the FSCS” because consumers could see its direct effect.

He added: “It would be a particularly difficult one to sell, given that it would seem as if the cost was moved to the consumer, but it would be clear cut and the cost to each consumer would be minimal.”

Meanwhile, Alan Chan, director and chartered financial planner at IFS Wealth and Pensions, said in its current form the funding model was “unsustainable” and an overhaul should be a priority as it was “having a detrimental impact on the shrinking number of good firms that remain year after year.”

Mr Chan added: “These supplementary levies no longer come as a surprise. They keep pointing back to the pink elephant in the room: regulatory failure. 

“I don’t believe we are being listened to and, on the contrary, our concerns are being brushed under the carpet.“

Piers Mepsted, managing director at Financial Advice Centre, added: "To learn from FSCS this is still subject to change and likely to increase further in 2021/22 is disturbing."

Martin Stewart, director at London Money, agreed that there was a “regulatory failing” somewhere in the system.

He said: “That is not to apportion blame as we are all sailing in the same vessel but I think there is scope to rethink a lot about the regulatory environment.

“I think sometimes it is too easy to do bad business in the UK and addressing that by cutting off the head of the snake could go some way to stopping the good guys paying for other people’s mistakes.”

Looking at the positives, Mr Harvey said the fact the lifeboat scheme was forcing other parts of the industry to contribute to the cost increase would “force them to sit up and take notice”.

Mr Harvey added: “It sends a message to the other parts of the industry — we’ve been maxed out, it could happen to you. They might start fighting back and asking the regulator ‘what is going on’.”

Moves made

The City watchdog has already made some moves to rethink how the lifeboat scheme is funded, saying in a Call for Input in September that it wanted to “consider” how it could have a system where “firms which cause harm end up paying more” of the FSCS’s costs.

The regulator reiterated it did not want to conduct a “fundamental review” of the structure, but said it was aiming for a “more preventative approach”, with options including a renewed attempt to pinpoint or penalise potential wrongdoers before claims arrived at the FSCS.

But newly appointed chief executive of the regulator, Nikhil Rathi, recently told MPs that it would take "two or three years" to abate the industry levy.

Reacting to the industry’s sentiment today, a spokesperson from the FCA said: “It is important that consumers receive redress when they have been harmed by a regulated firm’s act or omission, and the costs of this redress should be met in a fair and sustainable way. Every redress payment reflects a consumer who has suffered harm.

“Despite efforts from industry and ourselves, we recognise that the redress bill is too high and are taking steps to reduce it.”

The spokesperson added that reducing the levy would require the regulators and industry to “continue to work together”, noting it was already working “on a number of fronts” including the aforementioned Call for Input.

The FSCS will confirm any additional levies along with its forecast 2021/22 annual levy figures in its plan and budget, which will be published in January 2021.

amy.austin@ft.com, chloe.cheung@ft.com, rachel.mortimer@ft.com, imogen.tew@ft.com

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