The FSA says firms should be charged an exit fee by the compensation scheme (FSCS) if they stop advising on certain products.
In its latest quarterly consultation paper, the regulator proposes giving the FSCS the right to charge a firm if it stops carrying out activities in one of its five ‘activity' classes, but continues to operate in one or more other classes.
The exit fee would help the FSCS meet its expenses in the event of future compensation costs in that class. Currently firms can exit an activity class fee free.
There are five FSCS classes: deposits, life and pensions, investment, general insurance and home finance.
If an intermediary firm stops offering services in one of the classes, the FSA says the FSCS should be able to impose on that firm an exit fee.
It is one of two proposals made in the consultation paper.
The regulator is also seeking to reverse a rule enabling the FSCS to charge firms an exit fee at any point in the future to meet expenses incurred as a result of past defaults.
Prior to 2008, the FSCS could only charge an exit levy to meet anticipated compensation or management expenses for the year after the company had left the FSCS.
The FSA changed the rule in 2008 without consultation following a number of deposit-taker defaults. It said by widening the exit fee rules, it was removing the incentive for firms to exit the FSCS in a bid to avoid contributing to the massive costs incurred in 2008.
In the consultation, it says it will revert back to its pre-2008 rules because it has not seen a widespread exit from FSCS.
The FSA invites comments on the proposals by 6 September.
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