The vast majority of advisers think the funding review of the Financial Services Compensation Scheme (FSCS) will not go far enough and have asked for industry fines to be used to pay for compensation.
According to research from industry platform Panacea Adviser, about four-fifths of advisers thought the regulator should do more to improve the FSCS funding model. Just 2% surveyed thought the current review would go far enough while 17% were undecided about the outcome.
The FSCS pays compensation to consumers in claims against firms already in liquidation. These payouts are largely funded by advisers but, in its review of the funding model currently underway, the regulator has proposed to make providers pay for part of the cost.
It shied away, however, from considering a levy based on products sold, as favoured by advisers, saying this would fall under a "pre-funding" model where the FSCS would have to build up a reserve for future claims, something it does not currently do.
The FSCS's current model has long been considered a burden for advisers because of the often disproportionate fee rises year on year and the threat of interim levies.
Only this month, the body announced an additional £36m levy on life and pensions advisers after receiving a surge in claims against self-invested personal pensions in relation to failed investments held in the vehicles.
Panacea had asked 132 advisers about their expectations for the review. About 60% of respondents said the FCA needed to come up with an alternative to the current funding system while 88% disagreed with the regulator"s decision to rule out a product levy as part of the review.
About 40% of advisers told Panacea the ever-increasing levies imposed by the FSCS and the Financial Conduct Authority (FCA) could leave their firm unable to pay.
Just more than half of advisers favoured a "polluter pays" approach, including a "no-claims bonus" for adviser firms that have never had a claim, Panacea said. This would mean using fines levied on the industry, which are currently passed to the Treasury, to cover compensation costs.
Chief executive Derek Bradley said: "Panacea Adviser has been calling for a new approach to funding the FSCS for some time now. While our survey highlights the demand for a product levy, a proposal that we too are disappointed to see being ruled out by the FCA, we firmly believe there is another alternative - retaining 100% of all fines."
At the same time, according to Bradley, the FCA had gathered about £22m in fines to October 2016 while, inflated by large banking fines, the figures were £905m in 2015 and £1.5bn in 2014. These could have funded the FSCS for at least four years, Bradley said.
He added: "Put bluntly, the FCA needs to do the maths in order to persuade the Treasury - which underwrites the FSCS - that all fines could, and should, be used to reduce the burden of regulatory cost - in particular that of the highly contentious FSCS levy that all too often hits small IFA businesses the hardest."
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