Advisers have backed moves by the Financial Conduct Authority (FCA) to reduce their Financial Services Compensation Scheme (FSCS) bills but trade association PIMFA has said its plans do not go far enough.
The Financial Conduct Authority (FCA) outlined its plans to stabilise the lifeboat fund's levy demands and reduce the burden on advisers by 10% year-on-year from 2025 to 2030 in its paper on consumer investment harm today (15 September).
According to the FSCS, estimated compensation levy costs for the 2021/2022 financial year will be £833m, which is up 19% compared to 2020/2021. The FCA's latest Consumer Investments Strategy and Feedback statement outlined that the consumer investment market was responsible for driving most of these liabilities.
Rowley Turton director and Chartered financial planner Scott Gallacher said the rising FSCS levy has been a "bone of contention" and "financial burden" to most financial advisers for some time.
"I am delighted that the FCA has taken some time to come up with an action plan to address both the levy and the underlying problem," he told PA.
Thomas Skinner, director and financial planner at Barnaby Cecil said the planned levy reduction was part of a multi-faceted approach made possible due to the increased capital required by firms.
"We now all hold more cash, which should mean less drain on the financial redress lifeboat, and this is all positive to see. I would rather see cash on my balance sheet than cash in a compensation scheme."
He added: "However, the FCA must do one final thing and that is to react quicker to poor practice when highlighted. That should reduce the numbers needing compensation in the first place."
'Do not go far enough'
However, trade association PIMFA said the FCA's proposal on redress and professional indemnity insurance, also highlighted in the paper as a cause for increased pressure on the FSCS, do not go far enough.
Chief executive Liz Field commented: "While we applaud the direction of travel set out in this strategy and its ambition, the FCA's proposals for consumer redress and PII simply do not go far enough.
"Ultimately, the unsustainable rises in FSCS levies and significant hardening of the PII market are the result of complex drivers ranging from poor firm behaviour through to inadequate supervisory oversight."
Field added the FCA needed to be significantly more ambitious in setting out a supervisory approach.
"Harm must be identified and acted on quicker before it is able to manifest itself in the market which will, in turn, lead to fewer failures and as a result, increased confidence in the sector ranging from consumers to underwriters.
"To their credit, we believe they are moving in the right direction, but there is much more on this to be done," she added.
Matt Connell, director of policy and public affairs for the Personal Finance Society said the FCA's strategy is a radical departure from its previous regulatory approaches.
"Previously regulatory approaches have tended to take the path of least resistance, reducing the risk of capital loss without considering lost opportunities for consumers," said Connell.
"Trusted financial advice will be key to achieving these objectives and access to advice can only be achieved by resolving issues around the volatility of regulatory costs, including the FSCS levy and professional indemnity insurance."
He added he hoped the FCA and Treasury do not miss the opportunity to address these issues which have fallen between the cracks of different institutions too many times in the past.