May 18 – FSCS

The new funding structure for the Financial Services Compensation Scheme is a huge win for mortgage intermediaries.  Under the current structure brokers contribute to the life and pensions class due to the protection they sell but have been paying for the mis-selling of self-invested personal pensions.  The claims in this class have been substantial over the last five years.  Even as the SIPP complaints are starting to fall we are now seeing claims increasing arising from advice given to transfer out of defined benefit pension schemes.  This will result in an additional levy being raised at the end of the year.  Along with the risk of the inevitable claims relating to pension freedoms, it is only fair that mortgage brokers are no longer affiliated with pensions advice.

In respect of protection activity, mortgage brokers will instead contribute to the general insurance class.  This re-categorisation is a closer affinity between businesses; one of the cornerstones of how the FSCS is supposed to be structured.  The new structure is effective from April 2019, so the bills landing in June won’t incorporate the changes.  Claims for home finance intermediation are higher than FSCS previously expected as the legacy of Fuel Investments continues, with no sign of claims management activity slowing down.  The injustice of the Emptage ruling has been more painful by the lack of appetite to pursue those accountable.

There is at least light at the end of the tunnel, which comes in the form of fairness.  In addition to the closer alignment between insurance business, lenders will pay 25% of home finance intermediation claims.  As well as easing this acute burden, it accurately reflects providers’ responsibilities for the distribution of their products.

So while it might feel pretty dark at the moment, this time next year the success of these changes, engineered by the team at AMI, will start to shine.

Aileen Lees
Senior Policy Adviser

May 2018