The Financial Conduct Authority has explained its ten-year strategy for tackling the cost of the Financial Services Compensation Scheme, saying the regulator hoped once stabilised the bill would keep coming down.
Speaking to FTAdviser this morning (September 15) on the next phase of its consumer investments strategy, the FCA's director of consumer investments, Debbie Gupta, said the regulator was looking to stabilise the FSCS levy with respect to historic cases, which was why reductions were not going to happen until 2025.
This morning the FCA said it was targeting a 10 per cent year-on-year reduction in the Life Distribution & Investment Intermediation and Investment Provision funding classes over five years, from 2025 to 2030.
Gupta said: “We’ve listened very carefully to the responses that industry and others provided in response to our call for input, and it's clearly an area of concern, not just for us, but also for firms, so stabilising the levy is the first task.
“This is important is because in many ways, the things that are driving the levy are things that have already happened and it's those historic risks - for example risks from advice that was given in the past - those things will have to come to fruition and need to be settled for consumers, before we can stabilise it.”
She added: “Once we have, in essence, dealt with the historical liabilities that already exist in the system, then, we have an ambition as an industry, as do firms, to make sure that that FSCS levy comes down, year on year.”
Gupta said the regulator was being clear on its ambition, which needed to be a “joint endeavour” across industry, consumers and the regulator to make sure that outcome is achieved.
However, when asked about the likelihood of achieving these timelines, Gupta said “it’s difficult to give guarantees about the behaviour of firms in their sector.
“From my point of view, the strategy sets out the ambition, and the ambition clearly needs to be something we are all working towards.
“We would hope to see that, because what we will hope to do between now and 2025 is, in essence, deal with the historic liabilities that already exist, and make sure those are resolved and that's very much the work that we are doing in the defined benefit pension transfer market,” she said.
“We set ourselves an ambition to stabilise by 2025 and a year-on-year reduction for the following five years.
"In essence, a 10-year programme but this is certainly something that we will want to keep under review and the publication of the compensation review will help us get under the skin of some of the drivers of the levy and how we might resolve those in a more systematic way over the longer term.”
Suitability of advice
In terms of some of the main areas of concern in bringing the levy down, Gupta explained the suitability of advice remained a big challenge for the FCA, particularly in the defined benefit pension advice markets.