The Financial Services Compensation Scheme levy will continue to rise after the FCA's proposed reforms are introduced, according to adviser trade body Pimfa.
In December, as reported by FTAdviser, the FCA published a discussion paper exploring how the FSCS levy could be reduced, recognising that its continued increase was damaging for financial advisers and their clients.
But Tim Fassam, Pimfa's director of government relations and policy, has today (March 11) warned: “The FCA’s proposals are an implicit recognition of the fact that the FSCS levy has become unsustainably high, and we welcome the FCA’s initiative to engage on this issue.
“But we are disappointed that none of the proposals contained within the discussion paper address the cost of funding the FSCS in the short-term.
"It should be a priority for the FCA to ensure the levy reduces in the coming years. Sadly, all indications suggest that it will continue to rise until the FCA’s stronger approach to supervision begins to bite."
Indeed, Pimfa has warned "significant" firm failures are likely to continue to arise from the Sipp market in coming years.
In its discussion paper, the FCA asked whether there should be changes to the scope of FSCS protection, for example excluding high net worth clients or EU products.
But in its response to the FCA's consultation, Pimfa pointed out that any changes would have to be forward-looking to prevent existing investors having their FSCS protection suddenly withdrawn.
Also among the proposals the FCA put forward were a more stringent appointed representative regime, reforms to prudential rules and the prospect of a risk-based levy.
Fassam said FCA fines should be used to fund compensation for harm introduced by FCA-regulated firms to provide immediate relief for advisers from rising levies.
The overall FSCS levy has increased in nominal terms from less than £300m in 2011-12 to an expected levy of £717m in 2021-22.
Fassam pointed out that last year the FCA levied £567m in fines to FCA firms. This would have accounted for 79 per cent of the FSCS levy.
He said: "While we accept that a proportion of this goes towards charity, there is clearly scope for at least some of the funds raised through fines to be diverted towards consumers who have been poorly let down."