The industry has put forward a range of alternative Financial Services Compensation Scheme funding models to achieve a fairer way of levying regulated firms.
The FSA’s consultation on reviewing the FSCS funding model, which closed last week, proposes increasing the annual limit of claims paid by investment advisers from £100m to £150m and calls for claims exceeding the annual limit for one class of firms to be met by a Financial Conduct Authority “retail pool”. It also proposes basing the levy on either one third of the claims expected over the next three years, or the costs anticipated for the following year, whichever is highest.
The Investment Management Association argues this proposal would lead to a build-up of reserves, but the FSA has not said how it would deal with this. The IMA suggests each class should have a reserve of its annual claims limit which could be paid out when the limit is breached or released back to firms if it is unlikely to be needed.
Aifa suggests echoing the approach of some European countries where a fund is built up through a product levy on advice based on a percentage of income from investment activities. The trade body says FSCS cover should be limited to certain products such as unit trusts and Sipps investing in UK funds and assets, with offshore and structured capital at risk products excluded.
The British Insurance Brokers’ Association wants to see a sub-class for “pure” insurance brokers to separate them from firms selling insurance as an ancillary product, such as banks.
Philip J Milton & Company managing director Philip Milton says: “A product levy seems the best idea as it introduces the concept of investor protection, which investors have to pay for.”