A product levy should pay for the costs of running the Financial Services Compensation Scheme, an adviser support company says.
Tenet said this would be “a fairer and more sustainable way” to fund the body.

The firm said the current system means the cost of compensation is ultimately passed down to clients.

In April it was revealed advisers will have to cough up £100m to the FSCS this financial year – due to rising claims linked to Sipps.

The levy for 2015/16 jumped up from the estimated £57m announced in January and the overall figure for across the industry has gone up by £32m to £319m.

The regulator has committed to a review of the FSCS’s model by the end of 2016 and Tenet believes that an initial funding pool should be created from regulatory fine income with the scheme then self-funded via a product levy.

The company cited figures showing FSCS levy costs over the past five years have escalated from £148m for 2010/2011 to £296m for 2014/2015 as evidence that change is needed.

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Tenet chief executive, Martin Greenwood, said: “We have a structure at present where the cost of compensation is ultimately passed down to clients of good quality advisers – the rationale being that poor quality advisers are much more likely to go out of business, not contribute to the next FSCS levy and leave their clients to call upon the FSCS for compensation.

“Tenet believes that a product levy on relevant products at the point of sale offers a much fairer, more transparent and sustainable solution.

“Fines levied on the financial services industry should be used in part to reduce the cost of regulation rather than going entirely to The Treasury.

“I doubt we would get continued access to the fine money but using it to set up an initial pool seems a reasonable demand. We need to significantly reduce cost pressures on the advisory sector if we want on-going access to affordable advice for consumers.”

The IFP has also called for changes to regulatory levies in a response to an FCA consultation recently, taking into account the high standards of businesses such as Accredited Financial Planning Firms.

The IFP said these are “genuinely operating to the highest professional standards and pose a significantly lower risk to consumers”.

Therefore it said: “We believe it is particularly important for this to be reflected in the amount payable by firms by way of their levy to the Financial Services Compensation Scheme.”