LevyNov 24 2022

Advisers on FSCS levy: ‘It is hard not to be cynical’

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Advisers on FSCS levy: ‘It is hard not to be cynical’
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Advisers have welcomed news that the Financial Services Compensation Scheme levy could fall to £478mn in 2023/24 but remain sceptical that things could change.

In an outlook update today (November 24), the FSCS forecasted a levy of £478mn for 2023/24 which it said was based on expected compensation payments totalling £592mn. 

This included £497mn for firms that have already failed; and £95mn for firms forecast to fail during 2023/24.

Advice firms, which fall under the life distribution and investment intermediation class, will contribute £105.5mn to the levy, a drop of £107.6mn in 2022/23. 

However, Philip Milton, owner of Philip J Milton & Company, said: “It is hard not to be cynical. 

“The figures should be falling further as the awful and allowed frauds, especially into scams pension schemes, are in the past.”

He explained that while this is welcome news, the figures are still far too high. 

It is a source of contentment that a significantly lower levy represents significantly lower instances of poor outcomes to consumers. Simon Harrington, Pimfa

“I won’t hold my breath that this will be the final figure as if the Financial Conduct Authority changes the British Steel redress calculation then the FSCS levy could quite easily rise again,” he said. 

Likewise, Garry Hale, chartered wealth manager and owner of HK Wealth Stirling, said: “Still a totally unfair and unsustainable system where in general the good apples pay for all the wrongdoing by the bad apples.

“A massive expense for advice firms where most will never need to use it.”

The FSCS said it is currently forecasting a lower levy due to an estimated 40 per cent reduction in self-invested personal pension (Sipp) advice claims decisions, with no large advice firm failures expected in 2023/24.

Also the average compensation per claim is decreasing due to macroeconomic inputs.

The lifeboat scheme said this has resulted in a circa £37mn decrease in compensation payments.

 Their failure to properly deal with LC&F, Blackmore Global, Bassett and Gold, the list goes on, significantly contributed to the levy. Darren Cooke, Red Circle Financial Planning

Elsewhere, many welcomed the news of the reduction.

Simon Harrington, head of public affairs at Pimfa, said: “The forecasted FSCS levy for the coming year represents significant and welcome downward movement, which will come as a relief to firms in an environment where other costs, which they have no control over, continue to rise.

“We welcome this news and hope that this is representative of future levy forecasts whereby failed firms are wound up in an orderly manner and at no cost to the wider industry.”

Harrington added: “First and foremost however, it is a source of contentment that a significantly lower levy represents significantly lower instances of poor outcomes to consumers.” 

The FSCS also said the levy for 2022/23 will remain unchanged at £625mn. 

The forecast for 2022/23 was first announced last November when the FSCS said it would be £900mn, however, it reduced this by £275mn in May saying there have been fewer Sipp provider failures and complex pension claims.

Darren Cooke, chartered financial planner at Red Circle Financial Planning said he hoped this “sets a downward trend” for the FSCS but also “highlights the impact failed regulation by the FCA had on businesses”.

“Their failure to properly deal with LC&F, Blackmore Global, Bassett and Gold, the list goes on, significantly contributed to the levy,” he said.

“All these were businesses that had no involvement from the advice community yet we still had to put our hand in our pockets to bail out the FCA's failure to deal with these scams.”

Cooke said, in all cases, the regulator was warned years before they finally collapsed. 

“Tens of millions could have been saved let alone the impact being scammed has had on the people affected,” he said. 

In October, the FCA said it was looking at the Blackmore Bond scandal in the same “forensic detail” as it has done with the London Capital & Finance scandal. 

Speaking at the regulator's annual general meeting at the time, the FCA’s executive director of enforcement and market oversight, Mark Steward said the regulator’s focus in relation to the bond scandal has been focused on the way in which those financial promotions operated.

The Manchester-based mini-bond scheme collapsed in April 2020. It had promised investors interest payments of up to 10 per cent a year from a property portfolio it was supposed to build with the money.

Around 2,000 investors lost £46mn, despite being told their money was guaranteed up to £75,000 through an insurance scheme. One investor lost his entire military pension, while another family lost £40,000.

Earlier this year, a BBC Panorama documentary about the Blackmore Bond scandal raised questions over the parameters of the FCA’s powers. 

sonia.rach@ft.com 

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