The government has faced pushback over the calculation model for the Financial Services Compensation Services (FSCS) levy after the economic secretary to the Treasury claimed it was the FCA’s responsibility.
In the House of Commons this week, John Glen MP was questioned over discussions the Treasury had had with stakeholders and FCA representatives over a review of the calculation of the levy.
The FSCS had said it was raising the levy to pay for the rising number of Sipp complaints, prompting many advisers to contact their local MPs to complain. The Personal Finance Society (PFS) created a template letter help advisers voice their complaints.
But Glen said responsibility for the levy lay elsewhere, describing the FSCS as an independent non-governmental body and also highlighting the independence of the FCA and the Prudential Regulation Authority (PRA).
“The FSCS levy is set annually by the FSCS within the limits set by the FCA and PRA.
“It is for the FCA and PRA to consider the impact of the levies on the firms they regulate, acting in line with their statutory duties.
“The government has no role in setting the levy,” he added.
‘The government has the authority to undertake a complete overhaul’
But PFS chief executive Keith Richards told Portfolio Adviser sister publication International Adviser the government had a role to play in improving the system.
“John Glen was factually answering a specific question about the calculation of the levy which, of course, falls within the remit of FCA/FSCS, as he stated,” Richards said.
“But only the government has the authority to undertake a complete overhaul and reform a broken FSCS and the evident failure of PII, which would require legislative change.”
The PFS has been campaigning to reform the levy system for the past few years and has contacted the Treasury, chancellors and FCA on the matter. It remains in contact with the FCA and Treasury over the levy as well as the increased Financial Ombudsman Service (FOS) compensation limit and hardening professional indemnity (PI) market.
It has touted a potential solution, which it calls a ‘savings and investment monetary protection and education levy’ (Simpel). This would be collected centrally by government and paid into a pooled risk-based fund which would eliminate the need for PI insurance as the fund would operate in a similar way, including an excess for upheld cases.
Funding model overhaul for FSCS levy
In a 2018 review, the FCA concluded the FSCS levy model was “fairly funded”.
But many advisers agree with PFS’ Richards and believe the funding of the lifeboat scheme is not working anymore.
Sandringham Financial Planners chief executive Tim Sargisson told International Adviser: “The FSCS is unfairly placing the burden on good, honest financial advisers.”
He deemed the levies have been “eye-watering”, considering the “£213m for 2020/21, as well as an extra £50m supplementary fee for 2019/20″.
“Advisers are forced to pay an equal share of the levy regardless of whether they have a faultless record or whether they recommend risky investments, such as unregulated investment schemes, which often is behind the high FSCS levies,” Sargisson added.
“The FSCS is a classic example of moral hazard, because the risk is borne by others.”
Make the ‘bad guys’ pay
When asked about the system, Perceptive Planning director Phil Billingham said it seems as if the “good guys” in the sector are paying for the mistakes of the “bad guys”.
“The majority of the levies have always historically been from poor products, and therefore a product levy has always been a sensible way of doing things,” he added.
Billingham believes that fines imposed for mis-selling and poor advice should be channelled into the FSCS, so that “the bad guys are seen to pay, and the money is not taken out of the sector”.
He added that a private levy should also be established.
“Anything that’s unregulated, like derivatives, should be asked to pay a higher levy as a percentage. So that when those schemes fail, there are funds available to pay out the consumers affected.
“The good guys who are remaining in the business shouldn’t be asked to pay 5% of their turnover and have to cut staff and employment in order to fund the bad guys.
“That is clearly a broken economic model.”
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