Tenet has argued that a product levy would be a fairer and more sustainable way to fund the Financial Services Compensation Scheme (FSCS), as opposed to the current system where the cost of compensation is ultimately passed down to the clients of quality advisers.
The Financial Conduct Authority (FCA) has committed to a review of the FSCS’s model by the end of 2016 and Tenet believes that an initial funding pool should be created from regulatory fine income with the scheme then self-funded via a product levy.
The industry has seen a 100% increase in FSCS levy costs over the past five years, escalating from £148m for 2010/2011 to £296m for 2014/2015.. With the FSCS announcing a rise in the final levy for the coming financial year, including a 300% rise for pension and protection intermediaries, Tenet argues this is only set to increase.
Martin Greenwood, Tenet chief executive, said: “We have a structure at present where the cost of compensation is ultimately passed down to clients of good quality advisers – the rationale being that poor quality advisers are much more likely to go out of business, not contribute to the next FSCS levy and leave their clients to call upon the FSCS for compensation.
“Tenet believes that a product levy on relevant products at the point of sale offers a much fairer, more transparent and sustainable solution.
“Fines levied on the financial services industry should be used in part to reduce the cost of regulation rather than going entirely to The Treasury. I doubt we would get continued access to the fine money but using it to set up an initial pool seems a reasonable demand. We need to significantly reduce cost pressures on the advisory sector if we want on-going access to affordable advice for consumers.”