The FSCS provides an important protection system for consumers of financial products.
As an authorised and regulated firm of Financial Planners, we contribute each year to the FSCS through a levy, which then pays compensation to the customers of other failed financial services firms.
This system of compensation and levies is massively unfair because the polluter rarely pays. Instead, it is left to those businesses who do not fail to put their hands in their pockets and compensate customers of failed firms.
As a result, our costs are higher than they would otherwise be, to fund these compensation payments.
The Financial Conduct Authority is currently consulting on some reforms to the FSCS, to make funding fairer.
Within their consultation, they have raised the prospect of product providers contributing towards the cost of claims involving intermediary firm failures, which would recognise their wider responsibility in the process. This is a positive move, although ultimately the customer still pays for customers of other (failed) firms.
Unfortunately, the FCA seem to have ruled out a risk-based product levy, which would raise funding for the FSCS each time someone bought a financial product; they would pay more when they invested in esoteric or particularly risky products.
What we really need, in addition to FSCS reform, is recognition from the FCA that high and growing FSCS levies are a signal of regulatory failure. If the FCA could more effectively regulate firms and prevent compensation liabilities from growing before firms failed, then reform of the compensation system would be less of a pressing issue.
“Firms that provide products will also contribute to intermediation classes for the intermediation activities that they themselves conduct.”