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FSA proposes cut in mortgage advisers’ FSCS levy

by: Adam Williams and Rahul Odedra
  • 25/07/2012
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FSA proposes cut in mortgage advisers’ FSCS levy
The Financial Services Authority (FSA) has proposed changes to the Financial Services Compensation Scheme (FSCS), including lowering the levy for mortgage advisers.

The FSA proposed that the total levy on home finance advisers would be reduced from its current level of £60m to £40m.

However, Levies for general insurance advisers could rise from £195m to £300m if the proposals are accepted.

The FSA said that 3,900 firms were active in the mortgage sector, although less than 3% of the advice industry operate exclusively in mortgages. Around a quarter of all advice firms operate solely in home finance and general insurance intermediation.

Robert Sinclair, chief executive of AMI, told Mortgage Solutions the report would have a mixed reception with advisers, with a number of firms facing increased fees.

“I think the FSA have recognised the lower risks involved in the mortgage side by lowering the threshold.

“But for advisers who work in the insurance sector, the increase in the threshold may mean they face increased fees overall.

“To date, mortgage intermediation has never got near the threshold, which is why the FSA has felt comfortable lowering the fees.”

Other proposed changes include:

– Two separate approaches for funding FSCS’ costs. One for activities we expect will be subject to the Prudential Regulation Authority’s (PRA) funding rules for the FSCS, such as deposit takers and insurance providers, and one for the other activities we expect will be subject to the Financial Conduct Authority’s (FCA) funding rules. There would be no cross-subsidy between the two

– No changes to the current funding classes

– A retail pool made up of all classes we expect to be subject to the FCA’s funding rules which would be triggered if one or more FCA classes reached their annual threshold (i.e. the limit that funding class would be expected to contribute in any one year)

– Revised annual thresholds based on assessments of affordability

– The FSCS to consider potential compensation costs expected in the 36 months following the levy instead of twelve months as is currently the case (except for the deposit class). This should smooth the impact of levies and may make levy requirements more predictable.

The existing FSCS funding model has been in place since April 2008. The FSA’s consultation will run until 25 October 2012.

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