I am not sure if you are aware but the FCA and the Financial Ombudsman Service categorise term assurance and critical illness as ‘non-investment protection policies’ whereas the Financial Services Compensation Scheme categorises them as life and pensions business.
FSCS levies are significant and our levies alone this year total more than £250,000 – with a staggering 73 per cent of the total bill relating to life and pensions.
This infuriates me as we do not hold investment or pensions permissions with FCA, yet we are expected by FSCS to pick up the bill of miscreants in that area. As if this is not bad enough, going forwards 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 general insurance intermediary should be picking up the bill for life and pensions (investment) firms and that we still work within a regulatory framework that allows firms to default, pass their liabilities on to the FSCS, before rising like a phoenix and starting all over again. Often the financial beneficiaries of the new firm are the same as the ones that just dumped liabilities on good firms via FSCS and then they go straight back into competition with them.
The FSCS is going to consult on its funding model moving forwards and it is clear a fairer funding mechanism needs to be found, perhaps a small product levy of some sort. I say this as it is patently unfair (I would argue indefensible) that the diminishing number of good firms are having to pick increasingly large bills for the bad minority.
This is the exact opposite of a regulatory dividend and it is utterly unjust that some firms are being levied for failures in other business categories where they do not hold FCA permissions and have never derived a penny of income.
Of course a major driver is the fact that the FSCS levy for the life and pensions sector trebled from £33m in 2014/15 to £100m for 2015/16 and FSCS says that is largely due to a rise in claims for missold Sipps and that the extra fees are “to fund the compensation costs for these claims”. And yet mortgage and GI firms who do not hold life and pensions permissions are receiving huge bills for a business class they have never had anything to do with.
It cannot be right that good firms are being treated so badly. Surely it cannot be in the regulators interest, FSCS’s interest or indeed the consumers interests for the current situation to prevail.