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FSCS levy hike reignites debate about how costs are apportioned
by Elsa Buchanan on Apr 23, 2014 at 10:26
Wealth firms are still losing out under the revamped Financial Services Compensation Scheme (FSCS), chief executives and the Wealth Management Association (WMA) have warned.
Their comments come as the FSCS announced the 2014/15 headline annual levy will be reduced by £37 million to £276 million.
However, wealth management and advisory businesses that fall under the investment intermediaries category will not partake in this good news. Instead, they will have to stump up £112 million for the year – a £7 million increase on earlier estimates.
It is a move that has prompted concerns that the regulator’s changes to the FSCS funding model, which were introduced this March, have not gone far enough to remove the prospect that private client firms could end up overpaying – as some have argued was the case under the old system.
Ian Cornwall, head of regulation at the WMA, pointed out that more than one-third of the £112 million contribution from investment firms (£47 million) will be attributed to compensation payments to consumers affected by the failure of Catalyst Investment Group, including investors outside the UK.
In Cornwall’s view, the collapse of Catalyst highlights a number of fundamental issues with the new funding model. Not least, the fact that consumers can claim in relation to Catalyst’s promotion of unregulated products, while clients offshore can also claim from the UK compensation scheme in relation to the activities of Catalyst.
‘This situation contradicts the Financial Conduct Authority’s design principles for the FSCS, which include durability, resilience, fairness and affordability.
‘The fact that 35% of new claims are effectively made by firms which have never paid into the pot is the illustration that model is unfair, and the FCA fails to take [that] into account.’
This concern is shared by Chris Macdonald (pictured), chief executive officer of Brooks Macdonald, who acknowledged ‘knowing exactly where the FSCS is paid out would be very helpful’.
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