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WMA calls on the FCA to reconsider FSCS levy burden
by Elsa Buchanan on Apr 15, 2014 at 14:50
The Wealth Management Association (WMA) has called on the FCA to reconsider the Financial Services Compensation Scheme (FSCS), after it found that a third of compensation payments could be paying out for firms which never contributed.
This followed a FSCS announcement it would cut its levies on regulated firms for the coming year by £37 million - except for private client managers and financial advisers, who will see their bill for the year rise to over £110 million.
The WMA said more than one-third of the £112 million contribution from investment firms (£47 million) will be spent in compensation to consumers affected by the failure of Catalyst Investment Group – including investors outside the UK.
In this month’s FSCS Outlook, the FSCS announced the 12-month compensation forecast for investment intermediaries had increased by £7 million, and the total payment included payments to Maltese investors.
Ian Cornwall, director of regulation at the WMA explained: 'The claims arising from Catalyst are due to the fact they promoted unregulated products: the promotional material they produced is reported to be unclear, unfair and misleading.
'So consequently consumers have a claim against Catalyst. In fact even consumers in Malta can claim off the UK compensation scheme in relation to the activities of Catalyst.'
The WMA claimed this situation 'contradicts the Financial Conduct Authority’s design principles for the FSCS, which include durability, resilience, fairness and affordability'.
Consequently, the WMA has called on the FCA to reconsider the overall fairness of the Scheme’s funding model to ensure firms undertaking promotional activities have to contribute their fair share.
'The FCA fails to take into account that firms undertaking promotional activity make no contribution to the FSCS pot,' added Cornwall.
'So we’re now in a position this year that a substantial chunk of the compensation claims against the investment intermediation class will be against Catalyst, which will not have paid one penny into the compensation scheme, and the FCA were aware of this defect in the funding model at the time they approved the rules.'
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