BSA oppose cross-subsidy of FSCS
It was originally proposed that only intermediaries and insurance brokers would be required to pay into a retail pool to provide consumers with compensation in the event of one such firm being unable to meet its financial commitments.
But following a consultation period the FSA, in response to feedback, is proposing that banks, building societies and insurance providers now contribute to the pool along with intermediaries.
Adrian Coles, director general of the BSA, said: “It is very disappointing to see the FSA proposing a u-turn on a key part of its original proposals. This new consultation includes a provision that building societies, together with banks and insurers, be required to contribute to compensation costs arising from future failures of insurance and investment intermediaries.”
Cole said such a cross-subsidy of firms with which the BSA has no connection or affinity is unwarranted and will be opposed.
An FSA spokeswoman said: “It is imperative to create a compensation scheme which is sustainable in its funding and is going to work into the future. We are looking to find a way of doing this which firms can accept even if they don’t like it.”
It was originally proposed that there should be no cross-subsidy between the Prudential Regulated Authority and Financial Conduct Authority funding classes but many respondents questioned the rationale for distinguishing between product providers and intermediaries.
It was argued by respondents to the consultation that a close affinity did exist between providing and distributing products. For that reason providers should have to contribute to the cost of funding claims arising from the design and distribution of financial products.
And some respondents argued that providers and intermediaries should support each other more so than other intermediaries with which they have no affinity at all.
The FSA responded to this feedback, in consultation document CP13/1, by proposing that some form of mutual support across the funding classes should be maintained for FCA firms so that the FSCS is able to cope with a significant call on its resources.
The document stated: “All firms subject to FCA regulation will have a mutual financial interest in maintaining the confidence of consumers who use the markets in which they operate.”
But Hilary McVitty, head of external affairs at the BSA, said the new proposal was not fair and the association would be discussing its arguments with the FSA.
She said: “Our members are already having to pay substantial sums for the failure of Bradford and Bingley and the Icelandic banks so the bill is getting larger and larger.”
Consultation on this issue will close on 18 February 2013 with plans to implement the new funding model from 1 April 2013.