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Fund managers rally IFA backing for FSCS reform
by Michelle Abrego on Nov 08, 2012 at 09:10
It has been more than a year since the Financial Services Compensation Scheme (FSCS) landed IFAs and fund managers with a £326 million bill relating to the collapse of Keydata, but the fallout is far from over, according to the Investment Management Association’s (IMA) Guy Sears.
IFAs versus fund managers
Sears (pictured), the IMA’s director of wholesale, said the need to reform FSCS funding had its roots in the £326 million levy, which had divided IFAs and fund managers when they should be working together. The FSCS’s 2011 Keydata levy landed IFAs with a £326 million bill to cover compensation paid out to clients in collapsed investment firm Keydata Investment Services.
The size of the bill was well over IFAs’ £100 million FSCS levy limit, resulting in the remaining £226 million being footed by the next subclass in line, fund managers.
As a direct repercussion of the huge levy, the FSCS decided to pursue legal action against hundreds of Keydata-selling advisers in a bid to recoup the money it had paid out. There were also even louder calls to overhaul the scheme’s funding model.
These calls were answered in July by the Financial Services Authority (FSA), which published a consultation outlining a number of measures to alter the way the scheme was paid for.
FSCS reform suggestions
For Sears, however, the FSA’s proposals do not go far enough, and he and the IMA have backed up their gripes by publishing their own set of proposals to reform the FSCS.
‘We took what the FSA talked about, and we felt they hadn’t worked it through sufficiently,’ he said. ‘We felt what little they did discuss within the paper was so little discussed, it was just asserted in a few places.’
The IMA has proposed the use of reserve funding and three-year forecasts instead of pre-funding or a product levy, arguing the latter proposals would distort the market for funds and could make UK funds more expensive.
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