More closely aligning advisers’ Financial Services Compensation Scheme levy contributions to the risk they pose to consumers would reduce the overall compensation bill says the Association of Professional Financial Advisers (APFA).
APFA is calling for a fundamental change to the system to create a fairer and more sustainable levy system. It argues that reducing the size of the compensation bill by preventing the losses should be the priority and that the regulatory framework for unregulated products should be tightened.
In considering the options outlined as under consideration by FCA, a survey of advisers conducted by NMG on behalf of APFA showed that 77 per cent believe product providers should contribute towards the cost of the intermediary funding class. On average, the advisers said that the provider contribution should be about a third.
A majority of advisers – 69 per cent – said the volume of risky products sold by a firm should be the basis for a risk-based levy, whilst 59 per cent thought it should be based on the number of successful FOS complaints made against it.
APFA director general Chris Hannant says: “It has long been clear that reform is needed for fair and sustainable funding of the FSCS. Our survey shows the strength of feeling that product providers should share the responsibility when their products end up causing consumer losses. The coming rules on product governance place a clear responsibility on such firms which should be reflected in a contribution to the FSCS fund.
“The FSCS levy system needs fundamental change. Compensating people who have received a bad service, been mis-sold a product or conned should be the last resort. Prevention is better than cure and so it is important that the FCA focus on stopping the losses in the first place. More needs to be done to keep retail clients away from unregulated products and tightening the current regulatory framework will reduce the likelihood of scams and sale of inappropriate investments.”
