21Oct

Advisory firms dismayed at the rising costs of regulation may be heartened by comments made by a member of the House of Commons committee that oversees financial services.

Mark Garnier MP has called for revenue the Financial Conduct Authority (FCA) gets from regulatory fines to be used to reduce the levy authorised firms pay to fund the Financial Services Compensation Scheme (FSCS), the scheme whereby clients of insolvent financial firms can receive compensation for losses incurred.

Firms need to pay authorisation fees to the FCA, and levies to fund the Financial Ombudsman Service, Money Advice Service and Pension Wise. Some of these fees have risen significantly in recent years, but it is the FSCS levy that perhaps upsets advisory firms the most.

Not only does FSCS funding require law-abiding, solvent firms to pay for the losses of insolvent firms, but the FSCS also classes ‘life and pension’ firms as one category. Paying compensation for mis-selling of self-invested personal pensions (SIPPs) is one of the most significant portions of the FSCS workload, and the current system forces advisory firms who only sell insurance, or only insurance and mortgages, to fund this compensation, simply because they fall into the ‘life and pensions’ category. Likewise, advisory firms who do offer pension advice, but who rarely recommend a SIPP, are also required to contribute.

The total FSCS levy for 2015/16 is £319 million, of which £116 million is paid by investment intermediaries and £100 million by firms in the wide ranging ‘life and pensions intermediaries’ category. In 2014/15, the total levy was £276 million, but life and pensions intermediaries paid just £33 million of this.

In previous years, the FCA’s predecessor, the Financial Services Authority, retained all the revenue it gained when it fined authorised firms for misconduct. But as the levels of fines started to increase significantly (the FCA’s record fine is the £284 million penalty handed to Barclays Bank for rigging the foreign exchange market), the Treasury started taking the revenue from fines to boost the public purse. For example, £35 million of the money obtained from the LIBOR rigging fines was spent on the armed forces.

Now Mr Garnier has called for fines to once again be ploughed back into the financial services industry, but this time to reduce the FSCS levy.

Mr Garnier commented:

“There’s always this ‘if something goes wrong it cannot possibly be the individual’s fault’ culture.’ It also manifests itself quite worryingly in the huge amount of money that IFAs pay now into the FSCS, which really is causing a great deal of problems.

“One of the things that I think we do need to have a very sensible conversation about is actually where some of these bank fines are going. [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][…] Actually should we be diverting some of that money into a fund that backs the FSCS payout? I think it’s the right thing for people who contribute to wrong-doing to [be creating] an element of self-policing.”

The issue of the FSCS levy may be looked at as part of the Financial Advice Market Review, a wide ranging review looking at consumers’ ease of access to financial services, which was launched by the Treasury and the FCA in summer 2015. As the FSCS levy and other regulatory costs rise, firms are often forced to pass these costs on to their clients in the form of higher fees, thus making it harder for some people to afford financial advice.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.
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