FSCS’s lifeboat fund said a significant proportion of its pay-outs are over poor advice. The FCA have reported suggesting they axe investment advice from FSCS’s remit.
The FCA states poor advice is the main reason for the soaring high complaints made to Financial Service Compensation Scheme (FSCS) which directly impacts levy bills.
In a statement this week, the FSCS said a large proportion of its compensation is paid out in relation to claims related to unauthorised and unregulated introducers, especially in relation to SIPPs.
The comments follow recent industry discussions opened by the FCA around reducing the scope of the FSCS, including axing investment advice from FSCS protection.
‘Crucially, with the FSCS’s forecast for next year’s levy currently sitting at £900m, a figure which all parties – including the FSCS – agree is too high, [the FCA discussion] also seeks to review how the costs of compensation are distributed across the industry and if this can be done in a more fair and sustainable way,’ the FSCS said.
The lifeboat fund said that actual costs to consumers are much higher than it can pay out due to its own compensation limits, largely due to poor pensions advice.
‘While compensation costs have been rising, the amount of money the FSCS has not been able to put back in customers’ pockets has risen too. Last year (2020/21) this equated to £194m, or £68,000 per person that we couldn’t pay simply because of FSCS’s compensation limits.
‘£104m of this, or £108,000 per person, was against pensions advice and switching claims.’
Caroline Rainbird, chief executive of the FSCS, said reducing protection is not something the FSCS agrees with, but it acknowledges the levy is currently having a negative impact on firms and that lowering it could reduce harm.
‘We have seen the impact the levy has on some firms who make a positive contribution to the UK market. They tell us it is unfair, and in some cases unaffordable. Something must change,’ she said.
‘It is important to note that this [FCA] review is not looking at how the FSCS operates. The team continue to provide the customers of failed financial services firms with excellent service, paying compensation where we can do so in an efficient and fair manner.
‘We have faced criticism from some levy payers over the size of their FSCS bill in recent years, but these costs are only a symptom, driven by the root cause of poor consumer outcomes.’