IFAs are losing faith in FSCS

However, our recent survey of Pimfa members has revealed the majority believe that, in its current form, the scheme no longer functions effectively.

The survey revealed the extent to which the FSCS is putting companies under increased financial pressure, with 45 per cent of member companies’ chief executives or business owners reporting seeing increases in their FSCS levy bill of more than 100 per cent in the past five years.

While there is an obvious inherent financial cost to businesses in funding the FSCS, increasing levies and difficulties in obtaining PII represent an existential threat

As many as 82 per cent said that FSCS costs now accounted for at least 20 per cent of all outgoings, excluding payroll and accommodation costs, and almost two-thirds (64 per cent) do not trust the scheme to deliver fair outcomes for consumers or their companies. Compelling evidence of frustration and disappointment.

In addition, the survey results disclosed that more than 26 per cent of companies reported professional indemnity insurance premiums had increased by more than 100 per cent in the past five years and 56 per cent reported their current PII premiums contained restrictions, including on historic defined benefit transfer advice, leaving companies without cover for advice given before the insurance policy began.

A meagre 17 per cent described themselves as confident of being able to secure PII terms that were affordable in the next 12 months.

Among the causes of an absence of trust in the compensation scheme, the majority were linked to rising costs over the preceding five years; distortions in the market that encouraged poor business behaviour; and a perceived willingness on the part of the FSCS to settle claims when there was little basis to do so.

It is important to understand that, while there is an obvious inherent financial cost to businesses in funding the FSCS, increasing levies and difficulties in obtaining PII represent an existential threat.

It affects their ability to do business, to plan ahead and to grow.

But for so many more, the issue is one of trust. There is a fundamental disconnect between a profession that seeks to deliver the best possible outcome for consumers, and a regulatory system that most companies see as providing inadequate support at best, while failing both the consumer and companies alike at worst.

There is no silver bullet. Ultimately, we need to reduce the size of the cake, which is already at a critical level.

As a result of the pandemic, costs for businesses are already under pressure and, if more are going to fall on the FSCS, which has been anticipated, the industry cannot sustain any more hikes in fees to pay for it. 

Solutions may be found in a combination of ways: revision of the regulatory perimeter, better supervision, financial harm being included in the government’s now heavily delayed online harms bill and financial advice being more available to a much broader demographic, and this now needs to be addressed urgently by government, the regulator and the FSCS itself.

We want to work constructively with them, not just on reducing the bill but on making certain that, on a year-on-year basis, the bill continues to fall.

As I said, the FSCS does play an absolutely vital role in protecting consumer savings and we recognise that consumers have a great deal of trust in it and how that benefits our entire sector.

But even the FSCS agrees that every single person who finds themselves having to make a claim for compensation through the scheme has, by definition, had a bad outcome.

Pimfa wants poor company behaviour and harmful products to be identified more quickly, for enforcement action taken swiftly and for all parties to commit to ensuring that claims upon the FSCS begin to fall rather than continue to rise.

Pimfa and its membership are committed to ensuring that in future we have the right regulatory framework, with the appropriate level of supervision to ensure consumers only ever have to rely on the compensation scheme in circumstances that are extreme or unpredictable.

Liz Field is chief executive of Pimfa