Authorised product providers currently only contribute to the costs of failed intermediaries from levies that they pay for their own intermediation activities.
“Bearing in mind product providers’ product governance responsibilities and the funding burden that has fallen on intermediary firms in recent years”, the Financial Conduct Authority believes “it is appropriate that providers, including Lloyd’s of London, pay additional contributions.”
In its consultation document, the UK watchdog said it had considered a 50/50 split but calculated that the total amount of funding for the FSCS would increase as a result. Under the 25/75 split, it would stay the same.
It said: “We believe that setting consistent contributions across the revised classes is a fair way to allocate compensation costs while maintaining the sustainability of the funding model.
“We accept that there is not often an equal liability between product providers and intermediaries, either across the board or in specific classes. We do not believe that a 50/50 split is appropriate; however, there is also no way to assess a suitable number on a class basis due to the variety of firm types and business models within each one,” the document stated.
Additional changes
The FSCS is currently funded by eight broad classes and the regulator has also proposed merging the Life and Pensions and Investment Intermediation funding segments. The regulator believes that the change could reduce the overall volatility of the FSCS bill for firms in both classes.
The compensation limit for investment provision and investment intermediation could also increase to £85,000 ($111,565, €96,085) from £50,000 under the plans, with coverage extended to some aspects of fund management.
The FCA is also seeking views on other options for reducing harm to consumers, including giving firms incentives not to carry out activities that have led to FSCS claims in the past.
The consultation document said that proposals are “to ensure that the FSCS provides an effective and sustainable compensation scheme for consumers who have suffered harm”.
“We also want to ensure that the levies that fund this compensation paid by any particular class of firms reflect, as far as possible, the claims that are, or are likely to be made on that class.”
The consultation is open until 30 January 2018 with a policy statement expected in the first half of 2018.
Polluters pay
This latest call for industry feedback follows on from a similar assessment in December 2016, in which the FCA proposed changing the FSCS to make riskier, so-called ‘polluter’ firms, pay higher levies.
The driver behind the changes proposed in the December consultation was to reduce the size of the compensation bill in the long term.
In that document, the FCA said that FSCS levy increases had largely been driven by the failure of firms that had given unsuitable investment advice.
