Following repeated calls from the advice sector of unfairness in the system, the FCA has acknowledged that “product providers and distributors do not share the burden of FSCS levies equally”.
The regulator revealed proposals yesterday to change the system.
The FCA stated: “Bearing in mind firms’ product governance responsibilities and the burden that has fallen on intermediary firms in recent years in funding the FSCS, we believe it is appropriate that providers pay additional contributions.”
But Hugh Savill, director of regulation at the Association of British Insurers (ABI), said: “We are very concerned at the proposal for insurers to bear additional costs to guard against failures by intermediaries such as brokers and advice firms – something insurers have very little direct influence over.
“We see no justification for the blurring of responsibilities in this way. We will be engaging fully in the consultation, with a focus on challenging the rationale behind this idea.”
He acknowledged that the FSCS was a “vital safety net in case of the failure of a financial services firm” but stressed that already insurers pay a “significant contribution towards it”.
He added: “It is worth noting that no UK insurer has gone bust for many years.”
The extra contributions could come from:
• General insurers
• Life insurers
• Home finance providers and administrators
• Investment providers
• Deposit acceptors
The FCA consultation paper stated: “Currently, authorised product providers only contribute to the costs of failed intermediaries from levies they pay for their own intermediation activities within the intermediation funding classes, and also to any costs incurred if the retail pool is triggered.”
The document stated: “We are looking at introducing product provider contributions towards the costs of claims involving intermediary firm failures, reflecting the wider responsibilities of product providers in the process.
“Firms that provide products will also contribute to intermediation classes for the intermediation activities that they themselves conduct.”
The consultation asks this question: Do you agree in principle that product providers should contribute towards FSCS funding relating to claims caused by intermediary defaults?