FSCS reform urgent in wake of uncertainty over levy

The need for reform of the Financial Services Compensation Scheme (FSCS) has grown even stronger after it announced its latest levy on advisers.

At first glance, the £33 million annual levy and £40 million potential interim levy on advisers represented a less punitive bill than advisers have been handed in the past.

Having already dealt with the bulk of claims relating to the collapse of Keydata, advisers haven’t been billed a levy on the scale of the £93 million and £80 million interim payments previously demanded.

However, a potentially crucial point to remember is that the FSCS hasn’t yet factored in claims related to the collapse of the UK arm of US broker MF Global. Reports have put the amounts being claimed by clients of the firm at around $1.2 billion (£750 million). If anything like that were to fall on the FSCS, it would have a drastic impact on the next interim levy.

Unless the Financial Services Authority is able to implement its review of FSCS funding at a drastically faster pace than it does most of its consultations, advisers could face footing another huge bill under the current unfair system.

The FSA’s review, initially launched in October 2009, is finally due to kick off in the first half of this year, having been shelved due to the uncertainties created by reform of the UK regulatory system. It needs to be put to the top of the regulator’s in-tray if advisers are to get a fair deal.