Product providers should share compensation levy burden

Added 16th August 2016

Nearly eight out of 10 (77%) UK advisers believe that product providers should contribute towards the cost of the Financial Services Compensation Scheme’s (FSCS) levy on intermediaries.

Product providers should share compensation levy burden

A survey by the Association of Professional Financial Advisers (Apfa) found that, on average, advisers think the provider contribution should be about a third.

Chris Hannant, director general of Apfa, said: “Our survey shows the strength of feeling that product providers should share the responsibility when their products end up causing consumer losses. 

"The coming rules on product governance place a clear responsibility on such firms which should be reflected in a contribution to the FSCS fund."


Intermediaries predominately fall under two of the FSCS's eight funding classes: Life & Pensions Intermediation and Investment Intermediation. 

If product provides were to become responsible for paying a third of the levy faced by intermediaries they would collectively pay £62.7m ($80.9m, €72.4m).

It should be noted, however, that while the total FSCS levy across all eight funding classes is currently expected to total £363m in 2016/17, that figure can rise depending on the number of cases the FSCS has to deal with throughout the year.

Loss prevention

The association also believes that reducing the size of the compensation bill by preventing losses should be the priority and that the regulatory framework for unregulated products should be tightened.

Hannant said: “It has long been clear that reform is needed for fair and sustainable funding of the FSCS.

“The FSCS levy system needs fundamental change. Compensating people who have received a bad service, been mis-sold a product or conned should be the last resort. Prevention is better than cure and so it is important that the FCA focus on stopping the losses in the first place.

“More needs to be done to keep retail clients away from unregulated products and tightening the current regulatory framework will reduce the likelihood of scams and sale of inappropriate investments.” 

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 


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