In an update today (May 26), the FSCS said its levy for 2022/23 fell by £275mn to £625mn, as a result of fewer self-invested personal pension provider failures and less complex pension claims.
Back in November, the lifeboat scheme had forecast its levy for the year to be £900mn.
But Panacea Adviser chief executive officer Derek Bradley said the fall was "worrying" as he questioned how the forecasting was "so wrong".
Bradley said: "Mostly it is wrong as they do not have enough money, now they have too much and they are carrying forward. Interesting that they carry forward rather than refund to firms?”
Red Circle Financial Planning chartered financial planner Darren Cooke remained sceptical as he hoped this would see his bill reduced this year.
“Odd what happens when they don't have to pay out for the failure to deal with scams like LC&F, Blackmore, Bassett and Gold etc,” he said.
“When the next one goes pop and they decide we have to pay compensation... I expect it to go back up again or to get a supplementary levy notice.”
Urgent reform is needed to ensure the FSCS is proportionate on the sectors that contribute rather than being accepted as a cost of doing business in the UK.Pauline Hawkes-Bunyan, Investment Association Meanwhile, Personal Finance Society director of policy and public affairs Matthew Connell, said the fall was welcome.
“Many well-run firms have seen steep rises in levy in recent years, and are understandably angry at having to pay for the cost of poor practice over which they have no control,” he said.
Yet he too raised concerns that the real problem with the FSCS levy and professional indemnity insurance is the volatility of costs and, in the case of PII, availability.
“Firms have no way of predicting the size of the costs, and so they always have to plan for the worst,” he said. “That reduces their ability to grow and to close the advice gap.
“A simple, and very small, percentage charge on assets under management in the UK would deliver the same level of consumer protection that we have today, without the volatility that is currently holding the market back.”
The FCA's role
In December, as reported by FTAdviser, the FCA published a discussion paper exploring how the FSCS levy could be reduced, recognising that its continued increase was damaging for financial advisers and their clients.
Aegon pensions director Steven Cameron, said: “The FCA has said its new consumer duty should improve conduct and culture and the hope is this will drive down the likelihood of customers suffering detriment and hence the need for compensation.
“Let's hope that's the case. At this stage, with the scope and scale of change difficult to predict, it may be too early to tell. But let's stay optimistic.”
Elsewhere, Philip J Milton & Co chartered wealth manager Philip Milton said: “Always good to see a drop in liabilities and about time too I suppose.”
“We have just sent details of very spurious behaviour to the Financial Conduct Authority and have to hope it reads it and acts upon it."
Urgent reform needed
Pimfa head of public affairs Simon Harrington, said the adviser trade body was pleased to see that the levy significantly decreased to what was forecast late last year.
“While this represents a significant reprieve for firms, we are cognisant of the fact that we will continue to see increases in the levy as harm works its way through the system,” he said.
“We have consistently argued that the government should give consideration to the use of FCA fines to help subsidise the levy, which would represent a 90 per cent contribution to the levy this year and is the purest distillation of the polluter pays model.
“Doing so would represent a significant show of solidarity to an industry which feels not enough has been done to bring the cost of the FSCS levy under control.”
Likewise, director of business: risk, culture and resilience at Investment Association Pauline Hawkes-Bunyan, said while it welcomes the FSCS’s commitment to “constructive dialogue” on the appropriateness of the compensation funding model, the IA is disappointed to see that the levy is forecast to continue rising at extraordinary levels.
“Urgent reform is needed to ensure the FSCS is proportionate on the sectors that contribute rather than being accepted as a cost of doing business in the UK,” she said.
“It’s vital that the scheme is fit and fair for the future – one that protects consumers, retains their trust and does not deter international businesses from locating themselves in the UK - and we’ll continue to engage with the FCA and FSCS on this important matter.”
FTAdviser understands that the FSCS expects the amount of compensation paid out to continue its year-on-year increase and that the levy can fluctuate from year-to-year particularly where surpluses arise and are carried forward so the amount of compensation expected is a more accurate measure of the trend.
sonia.rach@ft.com
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