Perhaps unsurprisingly the Building Societies Association (BSA) was disappointed that its members would be expected to fund 25% of intermediary compensation claims.
And it raised the notable issue that most home finance advice claims related to overseas property, which its members were typically well distanced from.
One broker who spoke to Mortgage Solutions also warned that his firm may be forced to raise customer fees to deal with the increase in the compensation claim cap which the Financial Conduct Authority (FCA) is preparing to raise to £85,000.
AMI joy
AMI said it was overjoyed that its lobbying for changes to the FSCS had finally been heard.
It said it was is grossly unfair that mortgage firms as the primary writers of life insurance had been paying a disproportionate amount of investment advisers’ invoices despite no connection between the two business lines.
“We are pleased to see that the proposals have been revised so that the FCA is now consulting on moving pure protection intermediation from the Life and Pensions funding class to the General Insurance Distribution class.”
AMI chief executive Robert Sinclair added: “The fact that the FCA has decided to re-consult with industry rather than proceeding with one of the proposals set out in the last paper is encouraging. They have not only listened to our concerns but are openly engaging with industry to ensure that they implement the fairest solution.”
Lender contribution
Sinclair was also pleased with the plans for lender contributions, although wanted the FCA to go further.
“We are pleased that the FCA has recognised that providers are also responsible for the distribution of their products.
“While the proposed provider contribution of 25% is not as high as we had hoped for, it’s a step in the right direction. We are really happy that the work done since the first consultation has paid off with a further consultation which reflects our long-term lobbying position,” he added.
Contributions by product providers to the sector are expected to reduce adviser FSCS levy fees.
However, one broker warned that the costs of raising the potential compensation claim cap to £85,000 may change may ultimately end up with consumers.
Peter Atherton, a mortgage consultant at Ashtons Financial Services, told Mortgage Solutions: “We discussed this in our management meeting this morning and decided that we will have to increase our broker fee to include an up-front element. So, in effect, the cost will be passed on to the consumer, but isn’t that always the case.”
A certain logic
The Building Societies Association (BSA) commenting on the way product providers were expected to contribute alongside brokers, said: “To the extent that there is affinity between product providers and intermediaries, we can see the case for product providers contributing to compensation liabilities arising from the activities of intermediaries.
“We raised concern, in responding to FCA’s original proposals, that it was diluting the concept of affinity and this concern does not appear to have been addressed fully in the FCA’s latest plans.”
As to the issue of mortgage broker potential liability going up to £85k, a spokesperson for the BSA explained: “We can see a certain logic to aligning the compensation limit for home finance advice with the current deposit protection limit.
“However, we are concerned that most claims and firm defaults in the home finance area have related to poor advice to consumers to borrow to invest in non-standard assets, notably overseas property. As such, this is somewhat remote from the business in which the generality of building societies are engaged and we would challenge the idea that societies should be included in the vanguard of levy payers liable to meet the cost of claims in this area.”
Read more about the proposed changes to the funding of the Financial Services Compensation Scheme.
