The paper outlines several potential avenues the FSCS is considering, however, TMA suggests brokers respond telling the body to replace the current scheme with a product levy or separate life and pensions from the home finance pot.
In January, the ‘home finance intermediaries’ class was hit by a £15m supplementary levy to pay for ‘unforeseen compensation costs’ in the 2016/17 financial year.
Roughly £10.5m of this was due to FSCS claims against a single firm, Fuel Investments after the firm advised clients to remortgage their UK homes to free up money for high-risk property investments.
Secondly, mortgage brokers are partly picking up the bill for a massive wave of claims in the life and pension intermediation sector.
An FSCS statement on 16 January said it expected the rising trend in these complex claims to continue, with a predicted levy rise of £171m, exceeding the annual limit for that class and triggering the contribution from all payers.
Brokers and networks across the country received FSCS bills for the extra cash in late January and early February, with payment windows of 30 days.
As it stands, the FSCS levy puts life and pensions in the same class, meaning that brokers who solely advise on mortgage protection are paying to insure pensions products, including self-invested personal pensions (SIPPs).
David Copland, director of TMA mortgage club, said: “Asking mortgage and protection brokers to pay for poor guidance on pensions is wrong. Most of our advisers are not licenced to sell pensions, but are currently paying for bad advice on pension products. Simply put, protection advisers should not be paying into a dual life and pensions pot.
“Whilst the FCA has recognised there is a problem, they have not recognised that these pots must be separated. This has to change, and brokers must take action. That’s why we are campaigning for brokers across the country to encourage the regulator to think again.”
In summary, the paper is consulting on:
• The PII market and the coverage it provides: Whether more comprehensive PII could increase the proportion and value of claims that are covered by insurance when firms fail
• Introducing product provider contributions towards the costs of claims involving intermediary firm failures, reflecting the wider responsibilities of product providers
• Changing funding classes for intermediation activities to smooth costs: These include alternative class structures that merge some or all of the different intermediation classes so that investment, life and pensions, home finance and general insurance intermediation may be grouped together
• Risk-based levies: Assessing whether FSCS levies should better reflect the risks of specific practices, particularly on firms distributing higher risk products
• Updating FSCS compensation limits and activities in light of the pension freedoms
TMA said brokers can respond to the FCA’s consultation paper at the FCA website and answer Q14: What are your views on the different funding classes we have set out here? Do you have any alternative proposals?
Or write a letter to:
Strategy & Competition
Financial Conduct Authority
25 The North Colonnade
London E14 5HS
Telephone: 020 7066 7630