The £24m additional levy demand from the Financial Services Compensation Scheme (FSCS) is a “disgraceful injustice” on innocent firms, according to SimplyBiz Group chairman Ken Davy.
On Thursday, the FSCS issued an additional £24m levy demand due to rising number of self-invested personal pensions (SIPP) claims.
The SimplyBiz chairman was unimpressed with the levy demand which will be spread across all funding classes which make up the FSCS retail pool.
Davy (pictured) said: “The additional levy highlights once again the disgraceful injustice of the current funding method of the FSCS.
“Thousands of firms who have never been involved in this type of business or had any way of being aware of, or stopping, the firms that have caused the losses are faced with picking up the bill.”
He added: “This totally arbitrary and ridiculous system which virtually everyone recognises is a broken model must be radically changed by the Financial Conduct Authority (FCA) without any further delay.”
The additional £24m level demand is linked to rising numbers of SIPP claims. Last April, the compensation scheme forecast these would total £146m but because of uncertainty it only raised a levy of £100m (the maximum for the sector).
It said the final additional levy of £24m cost would trigger a cross-subsidy and “fall on the retail pool”. Both advisers and providers across different funding classes will have to cover the additional costs.
The industry faced similar issues in January last year when the FSCS raised supplementary levies for 2016/17 on life and pensions advisers, general insurers and mortgage advisers to meet “unforeseen compensation costs”.
The Financial Conduct Authority is currently reviewing how the FSCS is funded. Providers could have to contribute more to the compensation body under the proposals.
Provider Aegon yesterday made similar comments about the additional levy.
Pensions director Steven Cameron said: “The latest announcement of an additional £24m to cover compensation payments for SIPP-related claims is lower than the anticipated £46m and as advisers have already been levied up to their maximum, this will be collected from the wider range of firms making up the FSCS ‘retail pool’, including provider classes, which at least shares the burden more widely.
“This further SIPP-related levy, which arises from only a very small number of firms recommending unregulated investments, strengthens the need for risk-based FSCS levies and for providers and fund managers to share compensation costs with those classes of intermediaries with whom they share a common interest.”