The Association of British Insurers has hit out at Financial Conduct Authority suggestions that insurers should bear additional costs to guard against possible failures by intermediaries such as brokers and advice firms.
Responding to the consultation launched by The FCA on the future funding of the Financial Services Compensation Scheme (FSCS), Hugh Savill, director of regulation at the ABI, said that it was unfair to ask the industry to bear the cost of potential intermediary failures, particularly give that in the UK, it is rare that such firms go out of business.
“The Financial Services Compensation Scheme is a vital safety net in case of the failure of a financial services firm and insurers pay a significant contribution towards it,” said Savill, pictured left. “It is worth noting that no UK insurer has gone bust for many years.
“We are very concerned at the proposal for insurers to bear additional costs to guard against failures by intermediaries such as brokers and advice firms – something insurers have very little direct influence over. We see no justification for the blurring of responsibilities in this way.
“We will be engaging fully in the consultation, with a focus on challenging the rationale behind this idea,” he said.
The FCA has invited views on the future funding of the FSCS and has also launched a consultation on a number of specific changes to its scheme rules.
The FSCS is the UK’s statutory compensation scheme of last resort, which can step in when an authorised financial services firm is unable, or likely to be unable, to pay claims against it. Firms from across the financial services industry pay levies to fund both the FSCS’s operating costs and the compensation it pays out.
The rules for the FSCS were last reviewed in March 2013 when the previous UK regulator the Financial Services Authority concluded a review of the scheme’s funding and published final rules. Since then, the scale and impact of FSCS levies has risen sharply for some firms, the FCA said in a statement announcing its consultation.
Christopher Woolard, executive director of strategy and competition at the FCA said: “The Financial Services Compensation Scheme plays a vital role in ensuring consumer confidence in financial services.
“We want to ensure protection for consumers and fairness for firms that pay for the compensation. We want to have a full debate with all interested stakeholders and this paper sets out the range of fundamental issues we want to discuss.”
The FCA is inviting responses on a number of options for changing both the funding of the FSCS and the coverage it provides to consumers. These options include:
- asking for feedback on the professional indemnity insurance (PII) market and the coverage that it provides – the FCA is considering proposals to make PII more effective through the introduction of mandatory terms
- introducing product provider contributions towards intermediation claims
- changing the FSCS funding classes for intermediation activities
- updating limits on consumer coverage in light of the pension freedoms
- exploring the potential for FSCS levies to better reflect the risks posed by particular practices.
The FCA is asking for responses to its consultation paper by 31 March 2017 before publishing final rules and a further consultation paper on proposed rule changes in Autumn 2017.