In a paper published on 1 May, the Financial Conduct Authority (FCA) said it is going ahead with implementing proposals that will require product providers to pay a quarter of the compensation costs which fall on advisers.
Under the proposals, discretionary fund managers and depositaries will also be included in the provider contributions.
Levy criticism
The proposals follow a consultation that finished in October, where some providers expressed they strongly opposed any levy, arguing they had no oversight of adviser behaviour.
Criticism also came from some advisers during the consultation, who said product providers should pay 75% rather than 25%, while others recommended a 50/50 split.
The FCA said in its paper that requiring providers to play more of a role in contributing to the FSCS “reflects the fact that these firms benefit from overall confidence in the UK market and the structures that exist for the distribution of products to consumers”.
“Requiring providers to contribute should further incentivise them to design products that are well understood by intermediaries and that benefit end consumers, and to understand and exercise control over their distribution chains,” the FCA said.
Provider support
Steven Cameron, pensions director at Aegon, said the provider “warmly welcomes” the FCA’s decision.
“Unlike other providers Aegon has been calling for this, partly to reflect the benefit all players in our industry receive from the confidence the FSCS provides to consumers using the industry’s products and services.
“We also want to support the vast majority of intermediaries who don’t generate claims on FSCS but who have had to prepare for unpredictable variations in fees and in recent years have had to pay the maximum possible for the intermediary class under the scheme,” Cameron said.
He said Aegon is now urging the FCA to continue to look at how it can reduce overall claims on the FSCS and move towards risk-based levies.
John Porteous, retail customer solutions director at Quilter, said spreading the levy burden more proportionately with providers “is the right thing to do”.
“Reform of the FSCS has the power to create a fairer system that protects firms and customers, while also removing some of the barriers to growth which the existing levy presents.
He also said the next step for the FCA should be to introduce a risk-rated levy “to incentivise good risk-management, encourage the right behaviours and ensure firms with a clean record and a well-managed business are not unfairly penalised”.
PII changes
The decision to introduce the levy follows a multi-year review by the FCA examining how the FSCS is funded.
In addition to the levy, the review suggests a raft of other changes to reduce the volatility of compensation bills and ensure different sectors contribute fairly.
Another major proposal concerns professional indemnity insurance (PII), which advice firms are legally required to maintain.
However, the FCA said it has become aware that some PII firms have put exclusions in place that mean the FSCS cannot bring a claim on their policy.
PII changes continue on page 2.
Geoffrey Hartnell says:
So when a prescription drug goes wrong, who’s responsible ?
The GP for prescribing it or the drug manufacturer who concocted it.
I know in my heart of hearts that if providers had to pick up the tab 100%, most of the rubbish peddled by unscrupulous Advisers wouldn’t even reach the unsuspecting public.
The only reason for blaming regulated advisors is they have deep pockets via the PI market.
Without that in place they wouldn’t even be on the FSCS’s radar.