9th June 2015

FSCS levy. We're captive on the carousel of time

Mark Neale the boss of the FSCS is looking for advisers to come up with a cunning plan to better fund the behemoth.

A particularly timely comment given that life and pension advisers are being levied for some £100m for the 2015/16 year, up 75% on a prediction some 3 months before and some 3 times the amount levied on them for the previous year. 

In a less than comforting way, Mr. Neale reckons that the current 3 year funding model is functioning “reasonably well.

This will become the industry that ate itself. Fees within the industry are simply parasitic. Sometimes a parasite/ host relationship can work well but when the natural balance is removed the host, in this case the IFA community and by way of unaffordable costs for doing business, it sees itself being eaten from within until it dies. 

Forget capital adequacy as being relevant in any way at all. In this case increasing, unpredictable fee increases will see fewer firms being able to afford to pay them, closing down with liabilities passed to the FSCS. Fewer firms mean higher costs for those left…..and those ‘painted ponies’ just go round and round until nobody is left on the ride. 

Surprisingly many seem unaware that the huge FCA fines levied on the banks and others are no longer used to reduce the regulatory cost on firms who had ‘done the right thing’. The original regulatory intention.

Why?

Because a statute, ‘laid before Parliament’ in February 2013, that went into force on 1^st April 2013 that made sure that those vast fines would be legally ‘skimmed off’ to benefit the Treasury, who perhaps with some sense of cynicism could have been privy to some ‘inside knowledge’ on how big those fines were going to be. 

Only today we hear that Lloyds has been hit with the largest ever PPI claim fine of £117m.

Banking fines for 2014 were £1,462bn To put some contextual scale to this massive amount, the total revenues raised for alcohol and tobacco in 2014 was £197bn- that equates to 4% of total UK taxation revenues according to HMRC figures. 

The FCA was obliged by statute to pay away £1.370bn of the fines the Treasury, the equivalent of 70% of alcohol and tobacco levies for 2014. 

So here is a thought Mr. Neale.

The biggest obstacle to consumers getting easy access to independent financial advice is cost. 

The biggest cost to financial services firms after salaries are for regulation.

Surely it does not take too much cerebral activity to calculate that with the FCA costs of £264m plus the FSCS budget of £319m, mega fines exceed regulatory costs by £888,431,800. 

This should mean that offsetting fines against the cost of regulation and compensation levies could give the industry ‘good guys’ a ‘fee free ride’ for over 2 years and those hard pressed ‘consumers’ or give “low end savers” as Mark Garnier MP calls them, access to financial advice at a very much reduced cost as they can benefit too from the reduction in the regulatory cost burden. 

Dare I suggest that these fines should be used to fund the FSCS?

Based upon the current budget at least 4 years looks possible, again reducing costs for consumers?

That would be a very moral, even sensible use of such large fines would it not Mr. Neale? 

Panacea Comment, Regulation