ABI slams FCA proposals that insurers should pay more for adviser failings

The Association of British Insurers has hit out at the UK financial services regulator’s controversial plans to “spread the cost of failure” and charge insurance companies and product providers for financial adviser failings, via changes to compensation payments structure.

In its latest consultation paper, published today, the Financial Conduct Authority reiterated its stance that some insurers should contribute towards costs of intermediary failings and help reduce industry volatility under proposed changes to the Financial Services Compensation Scheme (FSCS) in its latest consultation on the matter.

In a document entitled ‘Reviewing the funding of the Financial Services Compensation Scheme (FSCS): feedback from CP16/42, final rules, and new proposals for consultation’, the FCA outlined plans that could see many small;ll. to ,medium sized financial adviser firms save money on their regulatory costs, via changes to the way that the FSCS is funded.

Reduced adviser costs

The UK regulator is asking providers to pay 25% of the lifeboat fund’s compensation costs. It is also bidding to move pension and investment funding classes together, to help reduce adviser costs.

The ABI immediately hit back issuing a statement that said that the FSCS funding proposal: “gets the balance wrong and will continue to be widely opposed”, by the industry.

Responding to the FCA proposal, ABI director general, Huw Evans, said: “The FCA’s proposal gets the balance wrong and seems to go against the fundamental principles of FSCS funding – that those responsible for the failures are the ones who pay.

‘Entirely misplaced’

“Expecting providers to foot the bill for intermediaries they have no control over is entirely misplaced and will continue to be widely opposed by providers.”

In the paper the regulator added merging life and pensions intermediation and investment intermediation funding classes ‘should smooth firms’ FSCS levy contribution to a degree, helping to reduce volatility’.

The FCA said that the consultation data suggests that merging the life and pensions intermediation and investment intermediation classes will “spread the cost of failure” across more firms, reducing the annual average levy for firms and reducing volatility for the class and “increasing sustainability”.

According to the FCA analysis published in the updated consultation paper, under the 25% contributions rule change a small life and pensions advice firm could have seen its FSCS bill fall from an average of £9,000 to £5,850 in 2016/17 and a small advice firm in the investment class would have seen it bill fall from £9,400 to £7,950.

A medium sized life and pensions firm would see its bill fall from £180,000 to £117,000, while a medium sized investment advice firm would have seen its bill fall from £188,000 to £159,000, the FCA said.

To read the full FCA consultation paper, click here.

Official responses to the consultation paper must be submitted by 30 January 2018, the FCA said.