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Wealth firms face higher thresholds in new FSCS consultation

Wealth firms face higher thresholds in new FSCS consultation

The Financial Services Authority (FSA) to introduce new thresholds for the Financial Services Compensation Scheme (FSCS) based on affordability.

Wealth managers falling in to the investment intermediation class could see their payment threshold raised to £150 million from £100 million under proposals outlined today.

However proposals say the investment fund management class threshold should be slashed by £70 million, down to £200 million from £270  million.

A fresh consultation is being launched on the affordability proposals, which would be added to the existing funding classes. The FSA confirmed that it would go ahead with its proposal from July last year to keep the composition of existing funding share classes the same.

The regulator also said it is launching a consultation looking at whether FCA-regulated firms such as life and general insurers should also contribute to the FCA Retail pool when an intermediation class breaches its threshold, rather than just those providers that participate in the FCA FSCS funding classes.

The FSA said it was 'reasonable' to expect these companies to contribute, 'to reflect the role of providers in conduct-driven failures.'

'We propose that deposit takers, general insurers, life insurers and home finance providers also contribute to the pool if any of the thresholds of the FCA Intermediation classes are reached,' the FSA said, adding that the industry will have a chance to put forward its views on the matter until the consultation closes 18 February.

The move follows widespread industry lobbying, including the Investment Management Association which argued that other FCA regulated providers should contribute to the retail pool.

The IMA had called for banks and insurers to cross-subsidise the FCA scheme in the event of defaults, keeping the combined cap of the scheme at £790 million. The IMA said its members were concerned that under the proposed structure, banks and insurers face no potential liability in the event of mis-selling of their products by an intermediary.

Sheila Nicoll, FSA director of conduct policy, commented: ‘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.’

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