FCA admits FSCS levy is “unsustainable”
The Financial Conduct Authority admitted that the FSCS levy is ‘unsustainable’ at the PIMFA Virtual Fest.
Debbie Gupta, director of life insurance and financial advice at the FCA, told delegates in her keynote address on day two of the PIMFA Virtual Fest that the regulator shared the frustration of wealth managers and advisers over the Financial Services Compensation Scheme (FSCS).
Gupta said the FSCS estimate that its compensation levy for this year would be 48% higher than in 2020 at over £1bn showed the current situation was “unsustainable’, and added that the FCA wanted “to see this come down”.
Gupta went on to say that while the FCA recognises the painful consequences of where we are today and the need to consider ways to address it, she said the challenge was how to bring down the cost of the levy, noting that suggestions from across the industry had been “inherently contradictory”.
Tensions existed between “what was desirable versus what was achievable and what was practical and fair,” she said.
Within her speech, Gupta suggested some hard questions needed to be asked around the issue of PI insurance.
She noted that regulatory intervention could lead to higher PI premiums, but may reduce firms’ contributions to the FSCS.
The question, she said, was whether this would be considered a price worth paying.
She acknowledged that that many felt supervisory failings meant “bad actors were not being removed quickly enough” and that many felt that this in turn was “driving up FSCS costs.”
Gupta said: “Recognising that there is room for improvement is not the same as being the cause of higher FSCS or Professional Indemnity Insurance premiums.”
PIMFA produced an FSCS strategy paper in December, ‘A rising tide lifts all boats’, which highlights key activities and calls for analysis that can be undertaken by the government, the FCA and the FSCS.
The growth in scams and those consumers that would be considered financially vulnerable were key concerns for the FCA in the coming year, Gupta said.
She also noted the positive and important role the wealth managers and advisers played in helping their clients through the most difficult times.
Gupta went on to outline to the delegates that the FCA acknowledged it needed to change.
She added that the independent reviews of the regulator’s handling of LCF and Connaught made for “sobering reading for all of us”.
She said: “I wanted to reassure you that we are profoundly sorry for the mistakes we made and the devastating impact that has had on investors.
“Our approach to the consumer investment market will need to change and we will need to take account of the learnings from both the reviews.”
Liz Field, chief executive of PIMFA, said: “We are very grateful to Debbie Gupta for joining us today at Virtual Fest and for her frank and honest views.
“We will continue to engage constructively with the FCA as Debbie herself acknowledged in her keynote speech and I’m pleased that engagement, particularly at the start of the pandemic last year has enabled the regulator to work with our members in a constructive and agile way.
“We will continue to the engage with both the FCA and the FSCS to the issues of the levy and supervision.
“The fact that they both acknowledge the levy is unsustainable and that improvements need to be made to supervision are both welcome.
“At the start of this year PIMFA put forward a set of 12 recommendations that would, we believe, help create a consumer investment market that is Fit for the Future and provides Advice for All.
“At the heart of those recommendations were three principles: the creation of a safe environment that encourages more consumers to save and invest; improving financial literacy and enabling more people to access advice and the ensuring the regulatory environment is one in which the advice industry is able to thrive, innovate and grow. We stand ready to work with all stakeholders to make that a reality.”