Caroline Rainbird said while she understands the rising costs of the levy must be addressed, it would be better to drive it down by reducing the number of poor outcomes for consumers rather than through a review of the actual levy allocation itself.
The Financial Conduct Authority’s (FCA) latest call for input seeks answers on how to tackle the cost of compensation. And while it has stopped short of reviewing the funding of the lifeboat scheme, it has asked the industry for input on whether 'polluters' should be paying more.
Speaking to FTAdviser, Ms Rainbird said the way in which the levy is collected has been reviewed before, and a different focus is now needed.
She said: “Where I want to focus, and where I think we collectively need to focus, is not on shifting the payment of the levy around, although I do not want to sound as though I do not understand the challenges in this.
“I want to make sure we collectively spend enough time thinking about how we can reduce the level of compensation being paid out as well as the number of bad outcomes and how we can increase the number of positive experiences that consumers have.
“Shifting [the levy] around does not go to the heart of the problem.”
The FCA in its paper had offered up three approaches to shaking up the levy: firms involved in ‘riskier’ advice should hold more capital to avoid defaults in the first place, the same firms should take out ‘more’ or ‘different’ professional indemnity insurance; or those riskier firms simply pay more towards the FSCS.
While the lifeboat scheme welcomed the regulator’s latest move, and said it will look to respond and provide suggestions, Ms Rainbird believes more onus needs to be put on how to educate consumers.
She said: “The heart of the problem is that consumers are having poor outcomes so we need to look at how we can better educate people to make informed decisions and make them aware of the scams that are out there.”
But she added the call for input was “a good way of getting people together around the table” to discuss issues that are rife within the industry.
Also to think about what other issues there are which need to be addressed as a collective effort.
“At the end of the day we need to look at the harm this is doing to consumers and there is too much harm,” Ms Rainbird said.
Advice firms have seen dramatic rises in their FSCS levy costs over the past few years as defined benefit transfers and complex self-invested personal pensions claims have come to haunt the industry.
Advisers argue the FSCS charges levied on firms — alongside a hardening professional indemnity market — are making some advice businesses unviable.
Earlier today (October 19) the Personal Investment Management & Financial Advice association warned of an “existential threat” to the advice industry due to “enormous” increases in their PI premiums.
FTAdviser recently spoke with advice firms which had witnessed jumps of up to 160 per cent in their regulatory bills over the past two years.
Ms Rainbird said there “is not one simple, or even complex, answer” that will make this issue disappear.
She said: “The simple fact of the matter is too many consumers are having bad outcomes and that’s not good.
“Those bad outcomes lead to more compensation being paid which means that ultimately the levy payer is paying more.”
She said the FSCS wanted to be involved in the levy discussion and the call for input, and because the lifeboat scheme is unable to change its own rules, it is in “a good position” to lead the way.
Ms Rainbird added: “We are in a good place to work and lead the discussion that needs to be had with industry, with the regulators and with consumer groups to look at how we can collectively be affirmatively disruptive.”
What do you think about the issues raised by this story? Email us on firstname.lastname@example.org to let us know.