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Wealth execs demand FSCS cost clarity as thresholds change

Wealth execs demand FSCS cost clarity as thresholds change

Senior wealth management executives are demanding clarity over the long-term impact of the FSA’s exemption of income derived from funds from Financial Services Compensation Scheme (FSCS) tariff data and have slammed the affordability criteria.

Their comments follow the FSA’s decision to up the investment intermediation class threshold by £50 million to £150 million and reduce the investment fund management class threshold by £70 million to £200 million in April.

The regulator is also reconsidering allowing cross-subsidisation between FCA and PRA pools in the event of threshold breaches.

The Association of Private Client Investment Managers and Stockbrokers (Apcims) brands the FSA’s reliance on an affordability model put forward by Deloitte a major concern.

It says the model fails to take into account the impact of cumulative FSCS claims year-on-year when determining the ability of firms to pay the levy. Apcims says it also fails to take into account the ‘systemic risk’ of firms being unable to meet their FSCS liabilities.

The body has called for more detail on the long-term impact of the FSA’s decision to exempt income derived from funds from tariff data – a decision which has resulted in a £71 million shortfall, after fund management and investment intermediary firms resubmitted tariff data for 2010/11.

It said this will make it difficult to rely on historic data for the investment provision sub-classes. Apcims also took issue with the modelling of the investment intermediation class being based on revenue patterns pre-RDR.

Nonetheless, it welcomed the FSA’s decision to further consult on allowing some cross-subsidisation between FCA and PRA pools when an intermediation class breaches its threshold.

Jamie Matheson (pictured), executive chairman of Brewin Dolphin, said he had hoped the FSA had taken the opportunity to review its definition of annual eligible income, but welcomed the possibility of cross-subsidisation.

'We get some solace that there will be a further consultation about PRA regulated firms contributing to the pool, if the intermediary thresholds are breached in future. And although the definition of annual eligible income has not been refined as we hoped – an option to look again after the next levy remains on the table, which for us would be an important reform.'

Brewin expects the changes to thresholds to be broadly neutral as its investment management business is larger than its advisory arm.

A senior director at Rathbones is also calling for clarity on the potential impact of the fund exemption for the investment fund management sub-class looking ahead, but also welcomes potential cross-subsidisation.

‘One hopes that with greater regulation this won’t be tested at very high loss levels again. If this is the case it impacts affordability levels,’ he added.

Nick Holmes, joint-managing director at Brooks Macdonald Asset Management, expects that Brooks will end up with higher contributions to the scheme as the proposals stand. Last year the firm contributed £250,000 inclusive of interim levies to the scheme.

'It is clear that the industry remains confused about the best way to fund the levy, and of course no-one wants to pay more, and everyone is looking at less. Particularly loud are those who feel that they end up on the hook for others' failings, whilst having robust internal procedures to prevent those failings being likely to fall on their own doorstep.

'That being said, it is important that the consumer can be comfortable that the money is there, and I suspect it will always be the case that the larger, faster growing businesses will end up picking up more of the tab. However, it is important for all businesses that this is both predictable and manageable,' Holmes added.

He also welcomes the FSA consultation on cross-subsidisation between FCA and PRA pools, but suggests the alternative of a product levy could have some merit as an alternative to current proposals.

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