FCA willingness to engage on FSCS is positive, but real progress sits with the Government

11 March 2022

FCA willingness to engage on FSCS is positive, but real progress sits with the Government

PIMFA, the trade association for wealth management, investment services and the investment and financial advice industry, has called on the Government to make effective use of Financial Conduct Authority (FCA) fines to bring the cost of funding the Financial Services Compensation Scheme (FSCS) under control for firms in the short-term.

In our response to the FCA’s discussion paper on the Compensation Framework Review. PIMFA welcomed the progress the FCA had made with respect to addressing the fundamental drivers of FSCS cost: firm failures which have been driven by poor conduct and insufficient supervisory oversight. However, given that the levy is by its nature, backwards looking, PIMFA has once again urged the FCA, in partnership with Government, to consider the use of regulatory fines to reduce the cost burden for well-run firms.

Tim Fassam Director of Government Relations and Policy commented: “The FCA’s proposals are an implicit recognition of the fact that the FSCS levy has become unsustainably high, and we welcome the FCA’s initiative to engage on this issue.

“But we are disappointed that none of the proposals contained within the discussion paper address the cost of funding the FSCS in the short-term. It should be a priority for the FCA to ensure the levy reduces in the coming years. Sadly, all indications suggest that it will continue to rise until the FCA’s stronger approach to supervision begins to bite.

“We, alongside the FCA and many other industry bodies, have strongly advocated for a polluter pays model where those who introduce harm into the market are ultimately responsible for funding compensation for the harm caused.

“There is no purer distillation of a polluter pays model than the utilisation of FCA fines to fund compensation for harm introduced by FCA-regulated firms and the FCA should give due consideration to this.

“Last year, the FCA levied £567m in fines to FCA firms. This would have accounted for 79% of the FSCS levy. While we accept that a proportion of this goes towards charity, there is clearly scope for at least some of the funds raised through fines to be diverted towards consumers who have been poorly let down.

“This is an easy solution for the Government and the Regulator to implement to ensure consumers continue to draw confidence from a sector through the provision of schemes such as the FSCS.” 

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Notes for Editors

About PIMFA – the Personal Investment Management & Financial Advice Association

• PIMFA is the trade association for firms that provide wealth management, investment services and the investment and financial advice to everyone from individuals and families to charities, pension funds, trusts and companies.
• The sector currently looks after £1.65 trillion in private savings and investments and employs over 63,000 people.
• PIMFA represents both full and associate member firms. Full members provide a range of financial solutions including financial advice, portfolio management, as well as investment and execution services. They assist everyone from individuals and families to charities and pension funds, all the way to trusts and companies.  Associate members provide professional services to the PIMFA community.
• PIMFA  leads the debate on policy and regulatory recommendations to ensure that the UK remains a global centre of excellence in the wealth management, investment advice and financial planning arena. Our mission is to create an optimal operating environment so that its member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments. 
• PIMFA has made numerous recommendations to the FCA regarding the Future of Advice, Future of Supervision and the FSCS levy – read more.
• PIMFA was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA) with a history as a trade association since 1991 – read more.
• Further information can be found at pimfa.co.uk

Contact

For further information on this release or other press matters please contact:

Matthew West, PIMFA PR Manager – MatthewW@pimfa.co.uk, +44 (0)20 7382 0376 / +44 (0) 7843 903258

Sheena Gillett, PIMFA Communications & PR Director – sheenag@pimfa.co.uk, +44 (0)20 7011 9869 / +44 (0)7979 493225