PIMFA has urged the government to use Financial Conduct Authority (FCA) fines effectively to reduce the cost of funding the Financial Services Compensation Scheme (FSCS).
PIMFA welcomed the FCA’s work in tackling the FSCS’s primary cost drivers: company failures caused by bad conduct and insufficient supervisory oversight, outlined in the FCA’s discussion paper on the Compensation Framework Review. PIMFA has once again urged the FCA, in collaboration with the government, to consider using regulatory sanctions to alleviate the cost burden for well-run firms.
PIMFA’s criticisms of the FSCS levy, as described in its response letter to the Compensation Framework Review, are based on two key points. That the levy continues to rise uncontrollably year after year, with no signs of abating. Furthermore, the cost drivers represent thousands of consumers who have been let down by industry, supervision, and the regulatory environment, meaning that regardless of the amount of compensation they receive, they have already received an outcome that could have been avoided by filing a claim with the FSCS.
FCA director of government relations and policy Tim Fassam says: “The FCA’s proposals are an implicit recognition of the fact that the FSCS levy has become unsustainably high, and we welcome the FCA’s initiative to engage on this issue.
“But we are disappointed that none of the proposals contained within the discussion paper address the cost of funding the FSCS in the short-term. It should be a priority for the FCA to ensure the levy reduces in the coming years. Sadly, all indications suggest that it will continue to rise until the FCA’s stronger approach to supervision begins to bite.
“We, alongside the FCA and many other industry bodies, have strongly advocated for a polluter pays model where those who introduce harm into the market are ultimately responsible for funding compensation for the harm caused.
“There is no purer distillation of a polluter pays model than the utilisation of FCA fines to fund compensation for harm introduced by FCA-regulated firms and the FCA should give due consideration to this.
“Last year, the FCA levied £567m in fines to FCA firms. This would have accounted for 79 per cent of the FSCS levy. While we accept that a proportion of this goes towards charity, there is clearly scope for at least some of the funds raised through fines to be diverted towards consumers who have been poorly let down.
“This is an easy solution for the Government and the Regulator to implement to ensure consumers continue to draw confidence from a sector through the provision of schemes such as the FSCS.”