The current Financial Services Compensation Scheme (FSCS) levy systems are outdated and must be overhauled, Personal Finance Society (PFS) chief executive Keith Richards has said.
Yesterday (21 January), in its suitability review, the FCA said the transfer of compensation costs such as personal indemnity (PI) via the FSCS levy places an “unfair” burden on the FSCS and other firms.
FCA director of life insurance and financial advice supervision Debbie Gupta said it also “threatens confidence and participation in the financial services market”.
Richards (pictured) said that “the time has come” to make legislative change. “The current levy systems are outdated, the markets have changed,” he said. “Legislation regarding pension freedoms, for example, is causing further strain and stress on the system.”
“The problem we had under the Financial Advice Markets Review (FAMR) is that the FCA didn’t have the remit to go beyond simply looking at who funded the levy,” he said. “Our proposals, even back then, would have needed government legislative change.”
However, now that there seems to be less focus on Brexit, Richards said he is optimistic the proposals the PFS made to the government to encourage legislative change will now be taken seriously.
He added: “I think it’s incumbent upon us all, from the government, regulators and the market to come together to discuss appropriate solutions that would fix that [FSCS levy]. It’s no good just talking about things.
“We’ve got to come up with potential solutions – even if the solutions simply help to stimulate debate for alternatives.”
Last week, it was announced that advisers face increased FSCS bills as the lifeboat fund is set to raise its overall levy to £635m for 2020/21 with intermediaries stumping up £213m. The FSCS blamed increased self-invested personal pensions (SIPP) operator failures for the rise. Collectively, advisers are set to be billed £213m for the 2020/21 financial year.
The body also confirmed a supplementary levy for 2019/20 of £50m from the life distribution, pensions and investment intermediation class. It said this was necessary due to increased claims volumes and new defaults.