August 17 – Still paying for the bad apples

Contributions to the Financial Services Compensation Scheme continue to unfairly dwarf the other elements of firms’ regulatory bills.

The invoices received last month reflect the predicted compensation costs for 2017/18. While these may be less than last year’s combined invoice total (July 16 and February 17), firms’ cash flow is being swamped because they will have suffered two large levies a few months apart. The amount raised in February from the interim levy will have to be paid again now.

The FCA seems to forget these FSCS levies are there because firms they had authorised and regulated gave bad advice and then failed. There appears to be little recognition in the difference between a firm that fails financially and one that fails and leaves liabilities: the latter means there is a problem with the advice or product and should be of regulatory concern.

While hundreds of millions in compensation is being paid out we have not seen the FCA take sufficient steps to stop fraudulent activity or to mitigate mis-selling claims that arise from the FSCS. Regulatory supervision has reduced over recent years and will continue to dwindle with the introduction of the Senior Managers and Certification Regime. Resources have instead been apportioned to assisting creative projects rather than focusing on fraudulent firms harming consumers. There appears to be less energy on tracking down and bringing to justice those involved in the firms that have failed in the last six years and brought huge calls via FSCS, than in promoting technology and competition.

We continue to push for a change in the way the FSCS is structured so that firms only pay for those which operate in the same business area and so that providers, as the product designers, also contribute to the costs. However the regulator also needs to change its behaviour, otherwise the industry as a whole as well consumers will continue to suffer because of these bad apples.

Aileen Lees
Senior Policy Adviser
August 2017