The Investment Management Association (IMA) has issued a series of alternatives to the Financial Services Authority's (FSA's) "perverse" proposed changes to the Financial Services Compensation Scheme (FSCS), having previously criticised its unfair treatment of asset managers.
In July, the regulator published proposals to eliminate cross-subsidies between asset managers and deposit takers and offer more certainty in the level of fees they pay towards the FSCS.
Costs would be split between deposit takers and insurers, who would be regulated by the Prudential Regulation Authority (PRA). Asset managers would be regulated by the Financial Conduct Authority (FCA), with no cross subsidy between the two.
The IMA said this means banks and insurers face no potential liability in the event of mis-selling of their products by an intermediary, only making them liable in the event of default by another bank or insurer.
But, if the relevant cap is exceeded in any year, fund managers would be responsible for fund manager defaults and potentially liable for mis-selling of their products as well as those from banks and insurers.
In its response to the consultation, the IMA has insisted banks and insurance providers be brought within the FCA scheme for cross-subsidy business, as they will supervised by FCA for conduct of business.
Groups which will be supervised by the FCA should continue to have no liability under the PRA scheme because they will not be supervised by PRA, it argued. The IMA also called for the combined cap on the FCA scheme to remain at £790m.
In its feedback to the FSA, the IMA added the existing proposal "clearly produces severe inequality between different product providers" and said it had many questions for the regulator.
"Why should fund managers face a different set of liabilities from banks and insurers? Why should those liabilities extend to the mis-selling of bank and insurance products when the manufacturers of those products are excluded? Why are banks and insurers outside the FCA scheme, when they will be supervised by the FCA for conduct of business?"
"This would mean that the maximum liability that PRA-regulated firms could face from the FCA scheme would be no more than 15-20% of their own caps. This would not have a material impact on the ability of firms to fund any liabilities arising under the PRA scheme, given the facility for rolling liabilities forward."
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