The Financial Conduct Authority (FCA) does not expect adviser levies for the Financial Services Compensation Scheme (FSCS) to drop until 2025.
This would mean health and protection advice firms are likely to continue paying the penalty for bad advice, firm failures and other issues from pensions and investment intermediaries until then.
However, the FCA has agreed to examine the way the FSCS is funded and today confirmed a discussion paper on the subject would be published by the end of the year.
In its Consumer Investments: Strategy and Feedback Statement published today, the FCA said it would be “reviewing the compensation framework to ensure that it remains proportionate and appropriate, particularly where firms fail leaving behind compensation liabilities for the FSCS to address. This will reduce the cost and impact of poor advice.”
Levies hitting non-investment firms
The need for action has arisen due to surges in claims against pensions and investment advisers which are being passed on to other parts of the industry.
In its statement the regulator added it was “acting to stabilise the Life distribution and investment intermediation (LDII) and Investment provision (IP) funding classes by 2025, and target a 10% year on year reduction in these classes from 2025 to 2030”.
The LDII class was originally forecast to be responsible for a £377m FSCS levy in 2021/22 – £47m higher than its cap. Meanwhile the IP class was expected to result in a levy of £241m, exceeding its cap by £41m.
These excess costs would be passed on into the retail funding pool, for advisers in other areas to pick up the pieces.
For this financial year the general insurance intermediary class, which includes health and protection insurance advisers, was originally expected to pay an additional £132.4m to cover failures and bad advice from investment and pensions firms – almost ten times more than the £14.4m levy it had generated.
However, this has since been revised down by the FSCS as a result of the pandemic and government support schemes.
But it is clear the FCA expects these originally forecast levels to resume once government support for businesses during the pandemic has been removed.