The Financial Conduct Authority has admitted that the FSCS levy paid by advisers is “unsustainable”, but says there are no simple solutions to this issue.
Speaking at an event held by PIMFA, the trade body, the FCA’s director of life insurance and financial advice Debbie Gupta also acknowledged the failing of the regulator and said improvements need to be made, particularly on how it utlises data.
Gupta acknowledged that frustrations of the wealth managers and advisers over this levy. She pointed out the FSCS estimates that the compensation levy for this year would be 48 per cent higher than in 2020 at over £1bn showed the current situation was “unsustainable” and she said the FCA wanted “to see this come down”.
Gupta also spoke about the need for improvements in the way the regulator operates saying there was a need for it to ‘up its game’. She admitted that the independent reviews into the regulator’s handling of LCF and Connaught scandals has made for “sobering reading for us all”.
She added: “I wanted to reassure you that we are profoundly sorry for the mistakes we made and the devastating impact that has had on investors. Our approach to the consumer investment market will need to change and we will need to take account of the learnings from both the reviews.”
However, while the FCA recognised “the painful consequences of where we are today” and the need to consider ways to address it. However said said the challenge was to look at workable solutions to bring down the levy.
Gupta acknowledged that that many felt supervisory failings meant “bad actors were not being removed quickly enough” and that many felt that this in turn was “driving up FSCS costs.”
But while admitting it would be “utterly absurd” for her to say there was “nothing more the FCA could do” she added that “recognising that there was room for improvement was not the same as being the cause of higher FSCS or professional indemnity Insurance premiums”.
Gupta said that suggestion from across the industry on how to tackle this problem had been “inherently contradictory”. Tensions existed between “what was desirable versus what was achievable and what was practical and fair,” she said.
Gupta suggested hard questions also needed to be asked around the issue of PI Insurance.
She suggested regulatory intervention could lead to higher PI premiums but may reduce firms’ contributions to the FSCS. The question, she said, was whether this would be considered a price worth paying.
PIMFA produced an FSCS strategy paper in December which highlighted key activities and call for analysis that can be undertaken by the Government, the FCA and the FSCS. This points to a collaboration between all parties including the industry.
PIMFA chief executive Liz Field adds: “We are very grateful to Debbie Gupta for joining us today at Virtual Fest and for her frank and honest views.
“We will continue to the engage with both the FCA and the FSCS to the issues of the levy and supervision. The fact that they both acknowledge the levy is unsustainable and that improvements need to be made to supervision are welcome.”
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