FSCS re-consultation ‘a token gesture’ – Biba

Biba has called the Financial Services Compensation Scheme’s (FSCS) efforts to put insurers on the hook for failed brokers “a token gesture”.

The trade body’s comments follow the FSA’s decision in January to re-consult on certain aspects of the FSCS’s proposed new funding arrangements, including whether insurers should help pay for brokers’ failure.

The decision to re-consult was prompted in part by lobbying from Biba.

Biba said today that it was pleased the FSA had listened to its concerns and re-consulted on the issue but that the new proposals “are a token gesture and should go further”.

Biba head of compliance and training Steve White said: “We are pleased that the FSA has now accepted that insurers should face financial responsibility for the mis-selling of their products.

“However, the actual exposure of insurers to Financial Conduct Authority compensation would be so low in practice that it becomes effectively redundant, even in quite extreme scenarios. Biba therefore calls for the FSA to make their proposed policy of introducing mutual support from providers to intermediaries effective in practice, not just in theory.”

White added: “We are in the middle of a long-term campaign and are doing all we can to minimise the exposure of brokers to other providers within the FSCS. We have won our battle in respect of the banks but the immediate challenge is to get insurers to take collective responsibility for the potential failure of their products instead of brokers being on the hook.”

Retail pool concerns

The FSCS settles consumer claims on behalf of failed financial services companies. The scheme is funded by contributions from financial services companies.

However, Biba is concerned that too much of the financial burden for insurance intermediary failures falls on brokers and not enough on insurers under the proposed FSCS funding arrangements.

The original proposals for the revised FSCS funding envisaged the creation of a so-called retail pool. The pool would be funded by and pay for the failure of financial services intermediaries, including insurance brokers. In short, brokers would pay for brokers.

However, many felt that the companies producing the products sold by the intermediaries should also share some of the responsibility for the failure of those intermediaries in the FSCS structure.

Following lobbying from Biba and other concerned parties, the FSA agreed in January to re-consult on the retail pool. The regulator said at the time: “In light of industry concerns about this approach, the FSA is today opening a month-long consultation on a proposal that all providers should make contributions when the pool is triggered by the failure of an intermediary. This would include contributions from banks, insurers and home finance providers.”

Broker sub-class

Biba chief executive Eric Galbraith said: “The longer-term challenge is to achieve a pure insurance broker subclass, but the FSA has said it’s not prepared to do this primarily on the basis of practicality. We believe their concerns about the practicality of defining pure insurance brokers are misplaced, as our suggested solution is relatively simple compared to other regulatory systems. Consequently, we continue to believe that there is a robust case for the separation of pure insurance brokers from non-pure brokers in the FSCS funding system.

“We will do all we can to take this forward. The scheme is fundamentally unfair and we have pulled out all the stops to represent brokers including appointing lawyers and specialist consultants Oxera to assist with our arguments.”