The Association of Professional Financial Advisers (APFA) has just published its Position Paper on FSCS levy funding. This is part of APFA’s engagement with the Financial Advice Market Review (FAMR) and in anticipation of the Financial Services Compensation Scheme (FSCS) funding review, expected to take place after FAMR.
APFA is calling for a fundamental change to the system with the introduction of a product levy. It says that the FSCS could set a small surcharge for different product categories with a levy attached to the income from the transaction and sale of a product, added to its price and paid for by the client. What’s more, higher levies could be charged for higher risk products.
APFA’s overall aim, it says, is to create a fairer and more sustainable levy system whilst also protecting consumer interests.
The association is also calling for a change relating to the extent and level of FSCS compensation. Furthermore, it advocates the creation of a ‘whitelist’ of product categories for which FSCS compensation is available and a cap on compensation levels.
APFA’s Director General Chris Hannant said: ‘A product levy is a fair and workable solution. I believe it is the most equitable way to fund a compensation system as it does not penalise innocent firms, allows financial stability and also drives better outcomes for consumers.
In the context of FAMR, this is the right time to consider what is the right scale of redress. The current system has a tendency to compensate consumers who have invested in high risk products at the expense of those who have chosen lower risk ones.
Creating a ‘whitelist’ of products and capping compensation levels would not only promote greater consumer responsibility, but would also lower the overall costs of adviser firms, increasing accessibility of financial advice to a wider market and make a significant step towards the aims and goals of FAMR’.