FSCS levy overhaul could spell big changes for industry

The FCA has proposed a raft of changes to the funding for the Financial Services Compensation Scheme (FSCS), including charging a higher levy for brokers that use unrated insurers.

The regulator has also proposed that product providers could help to pay for the failures of intermediaries, which could mean insurers paying in more to cover potential broker collapses.

The regulator has launched a consultation on the FSCS levy changes this morning. Respondents have until 31 March 2017 to submit their views. The regulator will publish final rules and a further consultation on proposed rule changes in August 2017.

Unrated insurers

The FCA said that recent insurer collapses, including Gibraltar-based Enterprise, which the FSCS has had to pay out for, suggest that unrated insurers are more likely to fail than rated ones.

The regulator said: “Given the level of risk associated with placing customers with unrated insurers, we are considering whether brokers that place business with them should pay a higher levy than brokers who only deal with rated insurers.”

In the consultation it has asked whether respondents think risk-based levies should be charged to brokers that choose to place business with unrated insurers.

Strong reaction

The FCA has also proposed that product providers, including general insurers, could contribute to the funding for intermediary failures.

As it stands, product providers only contribute to failed intermediaries through levies for their own intermediation activities.

It said: “In contrast to the current arrangements, product providers could potentially contribute from the first pound of any claim facing intermediaries up to relevant limits.”

It added: “It remains important to ensure that product providers’ contributions to the FSCS are both affordable and sustainable, but we believe this is compatible with our proposals.”

This proposal has triggered a strong reaction from insurers. ABI director of regulation Hugh Savill said: “We are very concerned at the proposal for insurers to bear additional costs to guard against failures by intermediaries such as brokers and advice firms – something insurers have very little direct influence over. We see no justification for the blurring of responsibilities in this way.

“We will be engaging fully in the consultation, with a focus on challenging the rationale behind this idea.”