Rising levy does not reflect progress made, says FSCS chair

Rising levy does not reflect progress made, says FSCS chair
Marshall Bailey, chairman of the Financial Services Compensation Scheme

Financial Services Compensation Scheme chairman Marshall Bailey has said the rising levy does not mean progress has not been made to address this issue.

Bailey, who has just been re-appointed as chairman for a second term, acknowledged the FSCS levy had doubled since he joined the lifeboat scheme in 2018, and that forecasts show it will continue to rise.

He said this shows that the problem with poor advice given by bad players in the profession is “far from over”, despite him raising these concerns early into his first year as chairman.

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But he reiterated that this did not mean no progress has been made, saying advisers and others in the industry must appreciate there is a "lag in the system".

Bailey said: “A significant proportion of the claims we see relate to advice given many years ago, so our hard work is not in vain, but there is more to do. 

“It has been rewarding to see our strategy naturally evolve during its first two years, and we have very solid foundations to build on.”

However, he admitted that there was no quick solution to solve the issue of the rising levy.

Bailey added: “We are facing incredibly difficult times. The progress we've made is undeniable, but that doesn't mean it’s plain sailing going forward - quite the opposite. 

“Such a complex problem will never have a straight-forward, linear, solution. No silver bullet exists for consumer harm and the rising levy.”

Advisers have seen their FSCS bill rocket in recent years due to firm failures and rising claims in the pensions and investments market.

The total industry levy is expected to rocket to £1bn for 2021-22 – marking a 48 per cent rise on the previous year.  

Advice firms are expected to contribute £240m, the same as last year, due to the fact the class is forecast to breach its funding limits for the second year in a row.

Meanwhile, Bailey said Covid-19 should not distract the industry from the pressing issue of rising claims and compensation costs.

He said: “Financial products and services have grown ever more complex, fueled by the opportunities brought through digitisation. 

“As such, the claims we see have followed that same trend. Pensions and investments pose a particular challenge, and scams and fraud are rife too.”

Action Fraud reportedly received 822,000 reports last year and UK Finance has said that the number of impersonation scams, where fraudsters contact potential victims pretending to be a trustworthy authority, doubled in 2020 to almost 40,000.  

Bailey said these financial products must serve their intended purpose and increase the wealth of individuals.

Therefore investment advice provided to savers “must be helpful” and the variety of investment opportunities available “must be welcome”, as they help people to save and invest for their future, he said.

Bailey added: “Finance and banking are valuable assets for our country. With that, we must help those who genuinely are baffled by it all to get onto a sound footing.