The Association of Independent Financial Advisers has praised the Financial Services Authority’s for its proposed reform of the compensation scheme as “robust” and “fair”.
Chris Cummings, director general of AIFA, says: “The compensation scheme is a vital regulatory safety net which helps maintain consumer confidence in the financial services industry, but it is in need of urgent reform if it is to continue to deliver its objectives.
“The FSA carried out a particularly thorough root and branch analysis of the options available before producing their radical proposals for reform.
“An independant financial advisor supports the principles behind those proposals.
“If implemented, we believe the FSA’s reforms will produce a fairer, robust and sustainable scheme which recognises mutual financial interest and the responsibilities of all parties.
“The current scheme is inequitable because it fails to apportion costs fairly to those firms which have profited from the business.
“This places a disproportionate burden on the independent financial advisor sector (£42m, 07/08), which risks further defaults and therefore makes the current basis unsustainable.
“Had the principle of mutual financial interest been in place from ‘day one’ a completely different economic model would now exist.
“The FSA’s proposals seek to address the current problems with the Scheme in an appropriate way.
“I applaud the regulator’s resilience in the face of stiff opposition from those who stand to pay more.
”I hope the FSA maintains its momentum for change and remains on track to meet its April 2008 implementation deadline.
“The last thing we need now is for the regulator to be sidetracked by the Retail Distribution Review and slow down the introduction of the new compensation scheme.”