The Financial Conduct Authority has revealed plans to reduce the Financial Services Compensation Scheme (FSCS) levy.
In a new strategy published on 15 September the regulator outlined plans to help consumers cut losses from investment scams.
As part of that plan it mentions the FSCS estimates that their compensation levy costs for the 2021/22 financial year will be £833m, up 19% on 2020/21.
The consumer investments market is responsible for most of these liabilities with claims rising from Life Distribution and Investment Intermediation (LDII) funding classes.
These account for around 72% or £618m of this estimated levy increase with firms having to contribute to costs being generated by firm failures originating in other funding classes.
The FCA said it plans to target a 10% year on year reduction in these classes from 2025 to 2030.
It also mentions other proposals alongside this to tackle investment fraud as financial scams have surged since Covid-19 started as more consumers look on the internet for products.
Consumers were reported to have lost an estimated £570m to investment fraud in the 2020/21 financial year.
The FCA says it will take action to address the issue of investment harm. By 2025, the regulator wants to reduce the money consumers lose to investment scams perpetrated or facilitated by regulated firms.
It will also halve the number of consumers who are investing in higher risk products that are not aligned to their needs.
Some of the package of measures include a new £11m investment harm campaign to help consumers make better-informed investment decisions.
And to reduce the number of people investing in inappropriate high-risk investments
The regulator wants to strengthen the appointed representatives (AR) regime with a consultation to be launched later this year.
In addition, it will also strengthen the financial promotions regime in three areas: classification of high-risk investments, further segmentation of the high-risk market and strengthening the requirements on firms when they approve financial promotions.
The FCA pointed out that it has already taken action to tackle investment harm citing the ban on mass-market speculative mini-bonds.
It has stopped 48 new firms from entering the market and published over 1,300 consumer alerts about unauthorised firms and individuals.
FCA executive director of markets Sarah Pritchard says: “Investors have never had more freedom – technology has democratised the market, new products have become available, and people have better access to their life savings than before. But that freedom comes with risk.
“We want to give consumers greater confidence to invest and to help them do so safely, understanding the level of risk. The package of measures we have announced today are intended to support that – we want people to have greater confidence to invest. We also want to be able to adapt more rapidly to the changing market and be assertive where we see poor conduct and consumer harm.”
Quilter financial planning expert Heather Owen adds: “The answer to improving both the access to investments and how they are used is to reach more with advice and improve access to financial guidance.
“The UK’s advice gap has led to consumers making choices that are unsuitable for their needs or disengaging from their finances and making no choices at all.”
