The director of life insurance and financial advice at the Financial Conduct Authority (FCA) has said that the financial regulator needs to change.
Debbie Gupta admitted that the FCA made “mistakes” in its regulatory actions that resulted in significant losses and impact for retail investors.
In her keynote speech at Pimfa’s Virtual Fest, she specifically mentioned the London Capital & Finance and Connaught cases, whose independent reviews made for a “sobering reading for all of us”.
“I wanted to reassure you that we are profoundly sorry for the mistakes we made and the devastating impact that has had on investors. Our approach to the consumer investment market will need to change and we will need to take account of the learnings from both the reviews.”
Gupta also took the chance to address industry frustration at the ever-increasing Financial Services Compensation Scheme (FSCS) levy, after the lifeboat scheme estimated that contributions for 2021 would go up by 48% at over £1bn ($1.4bn, €1.1bn).
She deemed the issue as “unsustainable” and that the FCA wants “to see this come down”.
But Gupta said that bringing down FSCS costs would not come without challenges.
The regulator recognised “the painful consequences of where we are today”, but she said that suggestions from across the industry on how to tackle the levy have been “inherently contradictory”.
One of the issues that is burdening businesses, especially those involved in defined benefit (DB) pension transfers, is the surge in professional indemnity (PI) insurance premiums, which is driving several firms away from this space, compounded with skyrocketing FSCS levies.
Gupta suggested that the regulator may be able to intervene to ease the burden, but regulatory intervention to bring down lifeboat scheme contributions is likely to lead to even higher PI premiums.
She said the question is whether firms would consider such a move as a price worth paying.
Industry players have been sharing their frustration for years now, as many believe the staggering rises are strongly linked to “bad actors not being removed quickly enough”.
While Gupta admitted it would be “utterly absurd” to claim there is “nothing the FCA could do”, “recognising that there was room for improvement was not the same as being the cause of higher FSCS or PI insurance premiums”.
Liz Field, chief executive of Pimfa, said: “We are very grateful to Debbie Gupta for joining us today at Virtual Fest and for her frank and honest views.
“We will continue to engage constructively with the FCA as Debbie herself acknowledged in her keynote speech and I’m pleased that engagement, particularly at the start of the pandemic last year, has enabled the regulator to work with our members in a constructive and agile way.
“We will continue to the engage with both the FCA and the FSCS to the issues of the levy and supervision. The fact that they both acknowledge the levy is unsustainable and that improvements need to be made to supervision are both welcome.
“At the start of this year, Pimfa put forward a set of 12 recommendations that would, we believe, help create a consumer investment market that is ‘Fit for the Future’ and provides ‘Advice for All’.
“At the heart of those recommendations were three principles: the creation of a safe environment that encourages more consumers to save and invest; improving financial literacy and enabling more people to access advice and the ensuring the regulatory environment is one in which the advice industry is able to thrive, innovate and grow.
“We stand ready to work with all stakeholders to make that a reality.”