The FSA has confirmed new rules designed to secure funding for the Financial Services Compensation Scheme (FSCS) in a way which is affordable for firms.
The FSCS provides compensation for customers if a regulated financial services firm cannot pay claims made against it. The scheme is based on funding classes which means that contributions from regulated firms are based on the type of business they carry out and are subject to annual thresholds.
In July 2012, the FSA proposed maintaining existing funding classes but using new annual thresholds based on affordability. Both these proposals will be adopted and will come into force when the FSA is replaced by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) on 1 April 2013.
The FSA also proposed setting up a Retail Pool, a collective resource funded by intermediaries and the investment providers which would be triggered if one or more of those classes reached their threshold. In light of industry concerns about this approach, the FSA is now opening a month long consultation on a proposal that all providers should make contributions when the pool is triggered by the failure of an intermediary. This would include contributions from banks, insurers and home finance providers.
Sheila Nicoll, FSA director of conduct policy, said: “We have listened to industry concerns and want your input on this revised approach for the FCA Retail Pool.
“Finding consensus on this subject is always going to be a challenge but we remain committed to finding a workable solution that firms can afford and live with.”
Chris Hannant, Policy Director at the Association of Professional Financial Advisers (APFA), said: “We’re pleased that the regulator has listened to APFA and proposed to reintroduce a cross-subsidy if intermediary class thresholds are breached, as it is important that product providers retain some responsibility for their products.
“However, we are disappointed that the FSA hasn’t announced a more sensible threshold for investment intermediaries. The regulator must recognise that the RDR and the wider economic environment will affect adviser revenues. The lack of revision to the threshold for investment intermediaries is a missed opportunity to build a more stable and affordable funding model.”