The Investment Management Association (IMA) has argued that product providers such as banks and insurers should help fund the Financial Services Compensation Scheme (FSCS).
The fund manager trade body has attacked the Financial Services Authority (FSA) over its plans to reform the way the scheme is funded, calling its proposals ‘wholly unacceptable’.
Under the FSA proposals funding for the scheme would be split in two between firms regulated by the Prudential Regulation Authority, including insurers and banks, and firms regulated by the Financial Conduct Authority (FCA), including IFAs and fund managers.
There would be not cross-subsidy between the two.
The IMA has proposed an alternative funding structure which would mean providers would be liable for complaints made against their products through a one way cross-subsidy.
It has argued all providers should be liable to contribute to the cross-subsidy arrangements in proportion to their existing liability caps and not receive cross-subsidy back from FCA classes.
It said: ‘The IMA considers this to better reflect the affinities which exist between the providers of structured deposits and insurance products on the one hand and their intermediaries on the other.’
The FSA has also proposed that the FSCS looks forward three years and then raises a levy which is the higher of the amount needed in the next 12 months and one-third of the amount expected for the following three years.
The IMA has instead proposed the use of a reserve policy and three year forecasts.
Under the IMA’s proposed policy reserve rule, each class would have a reserve equal to the maximum of its annual cap.
The sub class would be in credit with the FSCS and it would never be in debit at the beginning of the year by reason of the initial levy calculation.
Guy Sears (pictured), IMA director of wholesale said: ‘If adopted, our model would provide greater certainty to firms about future levies, smooth exceptional claims and ensure the right person pays.
‘The FSCS would not budget to have a negative end-of-year reserve, but would add additional amounts to the initial levy to budget for a zero reserve if otherwise the forecast might leave it negative.’