The FCA has said it recognises the need to stop “bad actors” across the advice and investment sectors in order to reduce pressure on compensation costs.
At the regulator’s annual public meeting this morning, the FCA was asked what needs to happen to ensure access to advice continues, given the cost of the Financial Services Compensation Scheme levy and professional indemnity are beginning to bring into question the viability of businesses.
Interim strategy and competition director Sheldon Mills noted that many firms had seen an increase in costs due to their Financial Services Compensation Scheme bills, particularly in investment sector.
He quoted total bills for the lifeboat fund amounting to £189m in 2019/20, rising to £229m in 2020/21.
“We recognise that’s a significant increase,” Mills said, driven by factors including an increased amount of pension misselling and the collapse of firms like mini-bond provider London Capital and Finance.
“I’ve heard personally from firms in the intermediary class that its unfair,” Mills said. “Its good advice firms paying for bad advice firms.
“We counterbalance that with: what is the voice of consumers here? Ultimately when firms fail consumers are harmed…The FSCS is an essential part of the regulatory framework, it provides a safety net. Its important to have it there and there’s a cost to that.”
However, Mills said that the FCA recognised the need to focus on reducing the number of “bad actors” driving up regulatory bills.
Work the regulator had taken on to try and weed such practices out has included looking at Sipp due diligence and non-standard assets, pension transfers, and its ban on marketing illiquid securities to retail investors, he noted.
“We are conscious we need to get to the position where firms can support consumers with effective advice,” Mills said.
The FCA expects to publish its review of how effective the RDR has been by the end of the year, Mills added.
