There are few things that surprise me in financial services, but the recent news from the FSCS that it is likely to issue an industry-wide levy of over £1bn for the 2021/22 year was undoubtedly a head-scratcher moment.
The reason for the 48% increase is down to its forecast that many more firms will fail during the year, consumer claims will increase, these are likley to be more complex and therefore the FSCS needs the money to ensure ongoing confidence in the financial services sector.
Read that sentence back and then wonder how on earth we might have got to this point, in what is supposed to be one of the most heavily regulated sectors in the entire world, let alone in the UK or Europe.
There are so many anomalies in this that it’s hard to know where to begin.
For a start, if the regulator and its compensation scheme are confident firms are going to fail in such large numbers, why aren’t they doing all they can now to mitigate against that risk and to stop activity which could cause consumer harm. Prevent that happening now rather than watching it happen later.
Isn’t this what a regulator is supposed to do? Part of its role is to consider the financial robustness of the firms it regulates – it if has major concerns about that robustness, act now instead of acquiescing to those firms failing and then having to issue compensation when the claims come in.
The other point to be made goes straight to the heart of the way the FSCS is funded and its inherent unfairness.
Take mortgage advisory firms, as the prime example. Those advisers within the FCSC’s ‘Home Finance Intermeidation‘ category will be asked to pay £22.9m towards the levy this year, that is a 600%-plus increase on the £3m that was paid last year.
This, at a time when (as mentioned) the overall budget is going up by 48%. If the increase for mortgage advisers was the same, it would mean an extra £1.44m, not £18.9m extra.
This, at a time, when it is not mortgage sector participants who are likely to be failing in greater numbers, or responsible for poor advice, but when the vast majority of problems are being seen in the investment and pensions space.
So, not only are mortgage advisers being asked to pay for more than their own share, but they are also being asked to fund the compensation of consumers who have been failed in sectors in which they have no interest whatsoever.
This is an absolute disgrace. Would this be acceptable in other walks of life? Would all drivers, for example, who observe the speed limit be asked to pay the fines of all those that don’t, or share the points that they receive for breaking the law? Of course not.
This appears to be the only sector in the known universe where good practice and good behaviour is penalised.
The FCA and FSCS is, in effect, making decent, hardworking, compliant firms pay for its own failures and for poor regulatory scrutiny.
It is effectively saying that it has mis-managed the entire financial services sector – notably in non-mortgage areas – by half and the outcome of that mis-management is those who are compliant must stump up for those who aren’t.
To say this system is fundamentally flawed would be a gross understatement. It is a sad indictment on all those regulatory parties and beyond belief that mortgage advisory firms are going to have to fund the sins not of their fathers, but of their second cousins twice removed.
To coin a phrase, this cannot be normal and we should not accept that it’s the shape of things to come. If there was ever a time for our trade bodies and professional bodies to stand up and make the case against such an increase, it is now. Otherwise this could be the future every single year.
