Calls for FSCS reform as brokers pick up bill for IFA ‘miscreants’

Brokers are calling for urgent reform of the FSCS levy as they feel they are unfairly paying to “pick up the bill of miscreants” in the life and pensions sector.

Presently, the FCA and the Financial Ombudsman Service categorise term assurance and critical illness as “non-investment protection policies”. However, the FSCS classifies them as life and pensions business. This means brokers are having to pay for things such as poor pensions advice, even though they do not offer advice in such areas.

Moreover, the FSCS levy trebled from £33m in 2014/15 to £100m in 2015/16, which the compensation scheme says is largely due to a rise in claims for missold Sipps and, therefore, the extra fees will fund the redress for these.

London & Country director Pat Bunton says his firm’s levy totalled more than £250,000 this year, of which 73 per cent related to life and pensions.

He says: “This infuriates me as we don’t hold investment or pensions permissions with the FCA yet we are expected by the FSCS to pick up the bill of miscreants in that area. As if this isn’t bad enough, going forward and with recent pension reforms we worry about what other misselling claims may arise in the future.

“It is patently unfair that a mortgage and GI intermediary should be picking up the bill for life and pensions firms and that we still work within a regulatory framework that allows firms to default and pass their liabilities on to the FSCS, before rising like a phoenix and starting all over again.”

The FCA is set to consult on the FSCS’s funding model next year. Both Bunton and Association of Mortgage Intermediaries chief executive Robert Sinclair propose a “very small” product levy that would go towards funding the compensation scheme.

Sinclair says: “This is all about the fact that there was a lot of misselling where a load of unregulated investments were put into Sipps. The advisers who did that have left the industry and walked away with the money they made and those left are now carrying the can.

“It is especially not fair on mortgage brokers, who are not involved in that side of things.”

He adds: “[The levy] is calculated in a very strange way because it isn’t calculated that way for FCA or FOS fees – it is only for compensation scheme fees.

“We should not be levying on the industry this way; there should be some form of product levy gathered so that consumers pay for this up front across the piece.”