Providers fight back over increased FSCS contributions

Financial services providers are set to clash with the Financial Conduct Authority (FCA) after the regulator recently ruled that they must pay a quarter of advisers’ Financial Services Compensation Scheme (FSCS) bills, Money Marketing has reported.

Following its review of FSCS funding, the FCA has now outlined its new requirement that providers must contribute 25% of adviser’s bills to the fund. This decision has been met with widespread protests from such advisers.

As a result of the recent increase in SIPP claims, the FSCS stated that it needed to raise an additional £24m from advisers through an interim levy. It blamed such advisers for the frequent mis-selling of high-risk products.

Despite this, the FCA has thrown its weight behind increasing the cost to providers, as they benefit from overall confidence in the UK market and should, therefore, be incentivised to design more customer friendly products.

Investment providers are already facing an FSCS levy hike, as the lifeboat fund recently stated that it needed around £71m more than was forecast for 2018/19.

The regulator has noted that most providers did not agree with its decision to increase their portion of the levy but also that the market failed to come forward with an alternative viable option. The options submitted by providers “add complexity and do not align with our policy intention to reduce volatility”, according to the FCA review.

The FCA is also attempting to simplify the FSCS, merging life and pensions and investment intermediation into one funding class, and pure protection intermediation to be moved from the life and pensions class to the general insurance class.

The FCA also plans to increase FSCS compensation limits from £50,000 to £85,000 for certain types of investment cases.

The FCA commented “while there are conflicting opinions, the need to secure appropriate consumer protection has been accepted consistently. This requires, among other things, a sustainably funded FSCS.”

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