Giving evidence in front of the Treasury Select Committee (TSC) yesterday, acting chief executive Tracey McDermott (pictured) said it needed to review the way the compensation liability was paid for which she said currently sees ‘the good guys funding the bad guys’.
The design of the levy is due for review at end of this year. It was previously reviewed and constructed under the chairmanship of Adair Turner in 2012 when banks were receiving fines for bad conduct leading up the financial crisis.
McDermott said the unpredictable behaviour of the levy was partly caused by issues with SIPPS (self-invested personal pensions).
When the FSCS announced the levy for 2015/2016 in April it was £32m higher than the amount it budgeted for in January. It said the reason for the increase was down to the rise in claims related to SIPP products. SIPP products fall into the same fee pot as life assurance which means mortgage intermediaries were forced to share the burden of higher costs.
Personal Touch Financial Services passed on the higher levy charges to its network members in September. Speaking at the time, David Carrington, sales and marketing director, described the current method of calculating the levy as ‘flawed’.
A member of the TSC asked McDermott and FCA chairman John Griffith-Jones if they were concerned that the increase in overall compliance fees charged by the regulator, which includes the levy, would price consumers out of the market and cause firms to go bust.
McDermott said she had not seen any trend which would suggest firms are going out of business as a result of higher fees. Griffith-Jones defended the 7.9% increase in this year’s fees by saying it was necessary to fund the takeover of consumer credit, fulfil the competition objective and deal with the payment system regulator. But he admitted fees could not continue to rise because at some point the value-for-money equation would cease to work.
Chief executive of the Association of Mortgage Intermediaries (AMI) Robert Sinclair said: “AMI is pleased to see the acknowledgment from senior FCA representatives of the fundamental issues that exist here. We are also delighted that Tracey McDermott sees the solutions being identified within the financial advice market review rather than following on after it. It is important for firms that this is done quickly to avoid more years of paying for a mess they did not create.”