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Apfa hits out at 'missed opportunity' for FSCS reform

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Apfa hits out at 'missed opportunity' for FSCS reform

The Association of Professional Advisers (Apfa) has hit out at the Financial Services Authority’s (FSA) reform of the Financial Services Compensation Scheme (FSCS), branding it a ‘missed opportunity’.

The trade body has criticised the regulator for sticking with plans to raise the investment intermediary threshold from £100 million to £150 million.

Chris Hannant, Apfa policy director, said: ‘We are disappointed that the FSA hasn’t announced a more sensible threshold for investment intermediaries.

‘The regulator must recognise that the retail distribution review 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.’

Apfa did though welcome the FSA’s move to consult on providers cross subsidising parts of the Financial Services Compensation Scheme (FSCS).

In last year's funding review of the FSCS the FSA proposed setting up a retail pool, a collective resource funded by Financial Conduct Authority (FCA) regulated intermediaries and investment providers which would be triggered if one or more of those classes reached their threshold.

Under the original proposals providers which fell into the Prudential Regulation Authority (PRA) side of the FSCS funding model would not contribute to this pool.

However, 'in light of industry concerns about this approach' the FSA has opened a month long consultation on a proposal that all providers should make contributions when the pool is triggered by the failure of an intermediary.

It has proposed that the retail pool would include contributions from banks, insurers and home finance providers.

‘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,’ said Hannant (pictured).

Contributions would not be made from the Prudential Regulation Authority FSCS funding classes themselves, only from firms which are also FCA regulated.

The FSA said that  providers firms’ contributions should be independent from any contributions they already make to the FCA intermediation FSCS funding classes, for example banks’ investment intermediation activities.

The consultation will run for one month and depending on its outcome rules will be implemented from 1 April.

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.'

The FSA said that most respondents expressed concerns about what they considered to be a ‘disproportionate burden’ on investment providers since they were the only provider class supporting to the intermediation classes.

Bringing in other providers to the proposed retail pool is a victory for fund managers as the Investment Management Association lobbied against being the only providers included in the original retail pool.

The firms that are eligible to contribute to the FCA FSCS funding will not have to contribute to the pool if the threshold in their PRA FSCS funding class has already been reached.

Also, in the case that they have contributed to the FCA FSCS retail pool and their own PRA funding class is expected to meet or exceed its threshold the FSCS will collect the money from the FCA.

In the consultation paper, the FSA confirmed the funding limit hike for investment advisers from £100 million to £150 million despite in July admitting it would lead to firm exits in its cost benefit analysis.

The sub-class system will also stay the same. But from 1 April 2014, the FSCS will be able to spread the impact of levies over a three year period instead of the current 12-month levy.

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