Martin Reynolds is CEO of SimplyBiz Mortgages
This month I want to pick up on a debate that has been discussed many times over the years. Whilst the issue was improved a few years ago, it is still not perfect.
As you may have guessed, I’m referring to the Financial Services Compensation Scheme (FSCS) and the levy it puts on firms. This bounded back onto the radar with a bang in January, when the FSCS requested an additional levy of £1bn for 2021 – an increase of 48% on 2020 – reopening the debate about both its fairness and the transparency of the charge.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), who spearheaded the last that moved mortgage advisers out of the pension pool, was very much to the point in his comments: “In announcing that the [FSCS] needs to raise in excess of £1bn to make compensation claims we have reached a new low in the story of financial regulation in the UK.”
He followed this up with a clarion call: “On behalf of ordinary advisers who will have to find this money at a time when doing their job could not be harder, AMI requests that the review of future regulatory framework is expanded to look at how we develop a new approach that gives proper scrutiny of how firms are able to operate within the UK regulatory framework.”
We have challenged for change regularly and only received it partially, but it seems that the Financial Conduct Authority (FCA) could be in agreement this time. At a recent PIMFA Virtual Fest, Debbie Gupta, director of life insurance and financial advice at the FCA, was quoted saying the current situation was “unsustainable” and that the FCA wanted “to see this come down.”
So, will this happen? And, if so, when? The short answer is not anytime soon, unless we challenge it. Simply put, there are two questions that need answering: is the system inherently unfair, and does it penalise the quality firms that are in the market giving good advice? No, it is not fair, and yes, it does penalise.
On 10 December 2020, Caroline Wayman, the then chief executive of the Financial Ombudsman Service (FOS), sent a letter to Mel Stride, MP and chair of the Treasury Select Committee, as part of an exchange of letters relating to case numbers within FOS. As at 26 November 2020, there were 37,689 cases that had yet to be allocated to a case handler over eight weeks after receipt. There were 53,348 open cases which were more than six months old, and 23,625 cases that were more than two years old. Admittedly, more than 18,600 of these were related to payment protection insurance (PPI), but this still leaves 5,000 over two years old with no resolution. How many could cause additional recourse on the FSCS of which we are not aware?
To use an analogy, if three people leave a restaurant without paying their bill, do the other people who eat there that night share the loss on their bills? No, so why do we have to do this as an advice community?
The end consumer quite rightly must be protected, and where appropriate, compensated for poor advice. That is not under debate or scrutiny, and all advisers that I speak to would agree.
The method of this payment is the challenge. There must be a better way, and below are a couple of suggestions:
– A product levy across the whole financial services industry, ensuring that a small additional payment is made and pooled to cover compensation;
– A change of government policy that allows fines levied by the regulator on the industry to be recycled back into the FSCS pool. The reasons why it was taken away after the 2008 financial crisis are understood, but a review of this is long overdue.
It would also be a positive move from both government and the regulator, as well as an acknowledgement that the good advisers left in the market don’t have to pay for the issues of those that have left. I genuinely feel that this would also provide the consumer with greater confidence in the quality of advice moving forward.
How do we raise this issue better? I know that all trade bodies will play a positive role in this debate.
Last year, as we left the first lockdown, there was confusion in the non-league football community about what levels of league could allow spectators. This dragged on too long, causing financial issues for some clubs. A twitter campaign was launched by clubs and fans alike under the hashtag #letfansin, which was very effective.
Do we need to follow a similar campaign ourselves, better utilising social media? It feels like the country has become more politicised over the last few years, and campaigning has become more sophisticated. Maybe a new hashtag is needed: #FSCSFairForAll – fair for the consumer, fair for the adviser and fair for the manufacturer.