Financial Services Compensation Scheme 

Pimfa calls for FSCS review after interim levy

Pimfa calls for FSCS review after interim levy

The financial adviser trade body is calling for a review of the Financial Services Compensation Scheme (FSCS), due to concern that the underlying reasons for the latest interim levy are not being tackled.

The scheme announced yesterday (November 28) that the retail pool will pay an estimated extra levy of £69m, due to pension transfer and Sipp related claims.

It had already levied life and pension advisers £75m for this year, the maximum amount possible in the current nine-month levy period.

Since 2016/17, claims relating to pension transfer have increased significantly, such as the ones relating to British Steel Pension Scheme (BSPS).

But the scheme said based on experience, it is expecting the recent increases in Sipp advice-related costs to level off in 2019/20.

Pimfa said it was "deeply concerned" the reasons for these claims was not being tackled.

The trade body said it was unclear if the FSCS ever followed through on getting money it pays out back from professional indemnity (PI) insurance providers, who covered the firms who ceased to trade, which caused claims to end up with the FSCS.

Pimfa also said the new levy had created an untenable position for firms, where they were unable to effectively plan and budget for their future.

According to Liz Field (pictured), chief executive of Pimfa, "unexpected levy increases of this magnitude cannot be part of a long term sustainable funding option for the FSCS". 

She said: "Member firms need to be able to plan their own finances, and be confident that the relevant regulator is taking pro-active steps to address the root causes of increased FSCS claims not just the symptoms.

"We know the levy is complicated, but the industry needs to work with FSCS on a model that works for firms."

Ms Field added the trade body’s member firms, who fund the scheme, "should reasonably have confidence that the burden of costs from claims settled by the FSCS, whether they relate to defaulting firms or unsuitable advice, are recouped from the PI with the funds recouped used to reduce the financial burden increasing FSCS levies place on member firms. 

"We need this situation clarified," she concluded.

The FCA has already reviewed the FSCS's funding mechanism and is implementing a number of steps next year to make life easier for advisers. These include getting providers to contribute to the cost of the adviser levy.

The FCA, meanwhile, has announced it will ban advisers from taking out professional indemnity insurance policies which limit cover in cases of insolvency.

This will mean advice firms will have to have PI insurance which does not limit cover where the policyholder or a third party is insolvent, or where a person other than the advice firm, such as the FSCS itself, makes a claim on the policy.

FTAdviser reported yesterday that financial advisers were disappointed with the announced interim levy and questioned if the current regulatory regime was fit for purpose.