In our response to the FCA’s discussion paper on the Compensation Framework Review. PIMFA welcomed the progress the FCA had made with respect to addressing the fundamental drivers of FSCS cost: firm failures which have been driven by poor conduct and insufficient supervisory oversight. However, given that the levy is by its nature, backwards looking, PIMFA has once again urged the FCA, in partnership with Government, to consider the use of regulatory fines to reduce the cost burden for well-run firms.
Tim Fassam Director of Government Relations and Policy commented: “The FCA’s proposals are an implicit recognition of the fact that the FSCS levy has become unsustainably high, and we welcome the FCA’s initiative to engage on this issue.
“But we are disappointed that none of the proposals contained within the discussion paper address the cost of funding the FSCS in the short-term. It should be a priority for the FCA to ensure the levy reduces in the coming years. Sadly, all indications suggest that it will continue to rise until the FCA’s stronger approach to supervision begins to bite.
“We, alongside the FCA and many other industry bodies, have strongly advocated for a polluter pays model where those who introduce harm into the market are ultimately responsible for funding compensation for the harm caused.
“There is no purer distillation of a polluter pays model than the utilisation of FCA fines to fund compensation for harm introduced by FCA-regulated firms and the FCA should give due consideration to this.
“Last year, the FCA levied £567m in fines to FCA firms. This would have accounted for 79% of the FSCS levy. While we accept that a proportion of this goes towards charity, there is clearly scope for at least some of the funds raised through fines to be diverted towards consumers who have been poorly let down.
“This is an easy solution for the Government and the Regulator to implement to ensure consumers continue to draw confidence from a sector through the provision of schemes such as the FSCS.”
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