FCA rules that providers have to pay a quarter of FSCS bills

Written by Oliver Wade
01/05/2018

Providers will have to contribute 25% of advisers’ Financial Services Compensation Scheme bills, the FCA has ruled.

Despite opposition from some providers, and some advisers arguing that providers should have to pay up to 75% in response to the FCA’s consultation, the regulator has decided to proceed with proposals for providers to cover a quarter of advisers’ funding requirement.

The provider contributions will additionally include discretionary fund managers and depositaries.

The FCA said: “We think 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.”

Aegon has also supported the move, with its pension director Steven Cameron commenting: “Aegon warmly welcomes the FCA's decision to require providers to pay 25% of intermediary Financial Services Compensation Scheme levies from the first £1. 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.”

However, some providers have expressed a concern, stating that they could not be held responsible for advisers’ behaviour, and the costs of increased scrutiny of advisers may potentially be passed on to consumers, according to the consultation responses recently published.

A handful of firms claimed that they should only have to pay costs if their own advice business failed, but the FCA dismissed this on the basis that if it “removed firms with direct sales models, providers who use external intermediaries would subsidise levies paid by those who do not.”

Furthermore, the FCA added that alternative proposals for FSCS funding suggested by providers would either increase the volatility or complexity of the scheme.

“Given the complexity of the financial services market we are wary of introducing an overly complex calculation. We thought that 25 per cent was a reasonable reflection of our overall policy aims, accepting the divergent industry views on the topic, and recognising that this is a significant change.”

“Alongside these changes, we urge the FCA to continue looking at how it can reduce overall claims on the FSCS and also move towards risk-based levies so those firms undertaking riskier activities which are more likely to result in FSCS claims pay more towards the compensation bill,” Cameron concluded.

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