This compensation scheme, which was established by government but is paid for by regulated financial services businesses, is designed to protect the customers of failed firms.
The funding system for the FSCS means that solvent firms like Informed Choice pay for the failures of businesses who fail their customers.
This week we have heard that the FSCS wants another big levy from advisers.
Despite refunding investment advisers £50m in overpaid levies, they have warned an extra £36m will be levied on advisers and the wider financial services industry to pay for poor advice about Self Invested Personal Pensions (SIPPs).
The annual levy that will be charged to life and pensions advisers for the 2016/17 financial year was already set at £90m.
The additional £36m levy includes £10m which will be billed to life and pensions advisers, which brings the total levy costs to the annual limit of £100m for that funding class.
Commenting on the FSCS announcement about FSCS levies, Steven Cameron, Pensions Director at Aegon, said:
“Today’s announcement regarding further increases in FSCS levies for life and pensions intermediaries highlights how important it is to overhaul the sharing of compensation costs across all industry players alongside a greater risk-based focus.
“With the £100m levy cap on life and pensions intermediaries being exceeded for the first time, there will be some sharing across other categories in the retail pool but more needs to be done to avoid overburdening the wider population of intermediaries.
“With the prospect of growing and volatile fees caused by claims often generated by a very small number of firms, the FSCS needs to be both forensic in identifying causes, but fairer in sharing compensation across the whole industry including providers, fund managers and intermediaries.
“Today more than ever, individuals need access to professional advice and intermediation as they take on greater personal responsibility for their financial futures.”
We agree with these words from Steven Cameron and urge the Financial Conduct Authority to consider a different funding system for the FSCS as they complete their review of this area.
Large and rising FSCS levies are unfortunately symptomatic of regulatory failure; earlier invention by the FCA would prevent customers from suffering financial loss which requires compensation payments.
It is also worth remembering that the customers of solvent financial services firms pay indirectly for these compensation levies, through fees for advice and product charges.
Any steps which can be taken to ensure the ‘polluter pays’ for compensation in the future would help to reduce the cost of financial advice and make this service more affordable.