Backstage with Keith Richards – 26 May 2020

Last week we continued with our series of FCA roundtables, webinars and podcasts whilst also developing greater virtual/digital content for the future. We are planning to resume our physical events in September and will update you as plans evolve.

I had a constructive meeting with HM Treasury last week. It is clear that member engagement of MPs has gathered momentum and gained the attention of central government. I will keep you informed of developments.

PII/FSCS – building a case for FAMR II

The Personal Finance Society has written to the FCA and HM Treasury urging them to introduce temporary measures to relieve advisers of the pressures they face right now in obtaining affordable, comprehensive professional indemnity insurance cover.

We have asked for a four-month waiver for advice firms searching for PI insurance and HM Treasury has been asked to consider acting as reinsurer of last resort for cover for financial advice firms.

While we acknowledge the FCA and Treasury have a list of urgent priorities at present, the challenges being faced by advice firms with pending professional indemnity insurance renewals are considerable, especially for those of you who have had little option but to accept unacceptable terms or a few who have decided to cease trading.

We welcomed the FCA’s pragmatic introduction of crisis reaction measures, such as suspending the 10 per cent reporting rule and extension to key deadlines, but the crisis of PII and consequential impact on FSCS remains at odds.

Amid the current crisis, financial advice is more important than ever before and we cannot as a Society afford to lose such valuable professional services, which is why action both short and long-term is required.

Financial Services Compensation Scheme

The Financial Services Compensation Scheme’s recent announcement that the levy to be shouldered by advisers in the coming year has increased by £16m to £229m (predominately as a result of an extra £44m set aside to meet claims for misleading advice against the collapsed mini-bond provider London Capital & Finance) is very concerning.

In speaking with advisers across the country, I know how many of you are doing a great job supporting your clients and providing the guidance and confidence they seek. With financial pressure and uncertainty being at the forefront of most members’ minds, it is frustrating for you to receive an additional call for cash to fund this levy during these unprecedented times.

The current method of funding consumer compensation is unsustainable. The Personal Finance Society wrote to the Chancellor George Osbourne in 2015 highlighting the need for reform of what we believe is a broken and outdated model, and subsequent to a meeting with the government, launched a Financial Advice Market Review (FAMR) in August 2015 to examine how financial advice could work better for consumers.

The review considered the regulatory and legal framework governing the provision of financial advice and guidance to consumers. The review found, amongst other issues, that three factors were reducing consumer access to advice as follows:

• The level of FSCS funding for advice firms
• The unpredictable nature of the FSCS funding
• A lack of availability of PI insurance for advice firms.

The review concluded that the unpredictable nature of the Financial Services Compensation Scheme (FSCS) levy makes it hard for firms to plan effectively. It also reported on problems which smaller firms experience in obtaining adequate PII at an affordable price.

Of the subsequent twenty-two FAMR workstreams, one was set up to address these issues, but ended up simply reorganising the levy deckchairs rather than fixing the underlying issue.

Ultimately, we want to see long-term reform of the FSCS levy and the professional indemnity insurance market. We have proposed a workable alternative way of funding consumer protection and have called on government to launch FAMR II – join the call for a Financial Advice Market Review II.

FCA Gabriel Reporting Flexibility

I also had a constructive meeting with the FCA last week, which allowed us to discuss the Gabriel return submission deadlines. Here’s a reminder about the FCA’s update regarding submission deadlines.

Welcome support for struggling mortgage customers

I was pleased to see the FCA’s announcement last Friday offering support for individuals who are struggling to pay their mortgage due to coronavirus. This extended and pragmatic approach is vital for those who need financial support during these challenging and uncertain times.

When the mortgage payment holiday was first announced, many consumers took this route because they thought they would be silly not too in case their role was furloughed or their other sources of income were threatened by the economic fallout of measures to slow the spread of coronavirus but it is right that the FCA is encouraging consumers to resume payments if able to, rather than continue to extend the term of their mortgage.

Your feedback is welcome via email to pfsnews@thepfs.org

Keith Richards
Chief Executive Officer – Personal Finance Society