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FSCS funding review welcome but FCA must address root causes, says APFA


The Association of Professional Financial Advisers (APFA) says it is supportive of the bulk of the regulator’s proposals for the funding of the Financial Services Compensation Scheme (FSCS) but it has concerns in some key areas.

It is supportive of the introduction of provider contributions, the merger of the funding classes and levies that better reflect the risk of specific practices.
However, APFA believes that more could be done to reduce the amount of compensation claims in the first place and calls for a tightening of the regulatory framework for unregulated products.
APFA says it will engage with the PI review but is concerned about the introduction of mandatory terms and calls for the root cause of the problem to be addressed.
Chris Hannant, APFA’s director general, says: “APFA welcomes this review and welcomes the FCA’s acknowledgement of the scale and impact of FSCS levies on many firms and its acceptance that fundamental reform is needed.
“We are very much in favour of provider contributions as providers have a role to play in the distribution of their own products and should take on some of the responsibility, particularly in light of the product governance requirements under MiFID II.
“However I believe that reducing the amount of compensation should be a priority and that more can be done to prevent consumer losses in the first place by tightening the regulatory boundaries around unregulated products.
“With regard to PII, whilst I welcome a review, I believe that the review team are approaching the issue from the wrong direction. If the PI market is not working effectively, this is because it is responding to the market conditions it finds. It is difficult to blame PI providers for building in exclusion clauses and high excesses when they are faced with insuring areas where liabilities are uncertain as a result of changing regulatory expectations and unpredictable FOS outcomes. The solution therefore is not to try to force the insurance market into providing more effective cover through mandatory terms, but to resolve the root cause of the problem.”

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