A review of its design has been promised, although the chief executive and the chairman are at odds over when this will begin, and a shift away from the culture of the good guys funding the bad was proposed as a place to start.
All, it seems, are in agreement that the levy is unfairly penalising some firms which have done nothing wrong.
This week we asked our panel of experts to give their views on how they would redesign the levy to make it fairer for mortgage brokers, if they were in charge for a day.
Simon Collins, product technical manager, John Charcol wants to see rewards offered to the ‘good guys’ by offering them discounted fees.
David Carrington, sales and marketing director at Personal Touch Financial Services, thinks the product categories need to be overhauled to bring the system up-to-date.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, would like to see a product levy charged up front on all products sold.
Simon Collins is product technical manager at John Charcol
As mentioned in the Mortgage Solutions article the current scheme was introduced in 2012 when the banks were getting fined left, right and centre and so as the market has evolved and moved on so therefore should the way the levy is calculated.
Keeping it simple, why not make it more like other types of insurance policies? There are a myriad of different sized firms that the levy covers, so why could the regulator not offer the option of paying slightly less if a firm wants or is able to make the upfront payment in full, or have a higher overall cost if they would prefer to make monthly payments. This would enable those smaller firms to manage their cash flow more effectively, whilst larger firms who can afford it get the benefit of a lower overall cost.
Also the regulator could look to offer a “low claims discount” for those lower risk firms that cause it less trouble. After all the acting chief exec of the FCA has admitted the current structure sees the “good guys, funding the bad guys.” So why not reward the “good guys”?
Another option could be to retain a set percentage of fines collected during the scheme, to help keep fees reasonable in future years, rather than seeing the total disappearing into the Treasury’s black hole.
In recent years the FSCS has evolved from being a peripheral part of the regulatory infrastructure to become one of the biggest threats to the future of the adviser community, including both directly authorised and network firms. It is out of control.
“Lumpy and unpredictable” may be regulator speak, but to me it is simply flawed and unfair and the “value for money equation” has already ceased working. It is particularly galling that failed advisers are being bailed out by the good guys.
At the heart of the review should be the scope of the FSCS: how can the same fund possibly provide customers protection against failed banks, product manufacturers and advice firms?
The sheer scale of increases, combined with an archaic and opaque levy system, has to be reviewed.
Costs need to be transparent and capped, for example, as a percentage of FCA fees and the levy approach scrapped as retrospective charges make cash-flow planning for any size of business difficult. The lack of accountability needs to be addressed: at present FSCS impacts on all advisers without challenge whilst the FCA, acting as a collection agency, appears powerless to change matters.
As well as the scale of increase this year the other element needing urgent review is the product categories. Currently mortgage and protection advisers, who have never sold pensions, pick up a huge chunk of the cost of compensating SIPP investors. An alignment with FCA authorisation categories would be a good starting point.
I am pleased the regulator recognises the need for review; it just needs to be urgent and radical.
As an industry we have positively subscribed to both FOS and FSCS as important safety nets for consumers when things go wrong. Those on the receiving end of FCA fee bills know how much the FSCS levy for mistakes in the pensions market is costing them. The market understood when the Chancellor thought it wrong that banks should benefit from fines levied on their brothers, so sequestered the funds for charitable benefit. If he had limited this to banks it would have been fair.
By taking this from all authorised firms the benefit of fee reductions to good firms from the fines on bad has been lost. The good firms have lost out in business to those who cheated and then also have to pay a second time for compensation with no fee reduction where the FCA has caught up with the bad boys. Firms should tell their MPs and the House of Lords that this was unfair.
If we cannot have our money back, then we need a new contract that is based on a fairer system so that the toxic products have paid towards their solution. A product levy charged up front on all products sold would be fairer and ensure that at least some contribution comes from all firms, including those that cause the problems.
If this is not possible then at worst we need to see mortgage brokers only held accountable at first call for products they advise on. The historic classifications still being used are not appropriate to the world today and need to be changed as soon as possible.