The FCA is set to require providers to pay a quarter of the cost of funding the Financial Services Compensation Scheme (FSCS) in a radical shake-up.

The FCA has announced sweeping changes in Consultation Paper CP18/11 which summarises feedback from CP 17/36. Apart from funding changes there will be major changes to the funding classes and the retail pool.

The changes to provider funding will introduce significant contributions from product providers to the cost of intermediary failures.

While many providers were strongly opposed to the move the FCA says providers will benefit from an improved compensation scheme. Some advisers wanted providers to pay as much as 75% of the costs.

FSCS contributions will be required from firms involved in providing investments; intermediating investments, general insurance, life insurance and home finance, certain debt management and consumer credit firms.

DFMs and depositaries are also set to be asked to contribute too.

The FCA says that respondents generally supported its proposals to change the funding classes and to increase the FSCS compensation limits from Ј50,000 to Ј85,000. It accepts “some respondents strongly disagreed with our proposals relating to product provider contributions.”

Changes to the funding classes will mean merging the Life and Pensions Intermediation funding class with the Investment Intermediation funding class. They will also mean moving the pure protection intermediation sector from the Life and Pensions Intermediation funding class to the General Insurance Distribution funding class.

On FSCS compensation limits there will be an increase in the FSCS limit for investment provision, investment intermediation claims, home finance intermediation claims and debt management claims from Ј50,000 to Ј85,000

The FCA will also change the Ј50,000 limit for claims in relation to the intermediation of long-term care insurance, which is considered a pure protection contract, to match the limit for other kinds

of pure protection intermediation, to 100% of the claim.

The FCA is also looking at Professional Indemnity Insurance and says it is aware that historically some PII providers have sought to limit their liability by preventing the FSCS from making a claim on the policy.

The FCA says that where a firm has, for example, provided negligent financial advice for a consumer to invest in a fund, “we do not believe a claim on that firm’s PII should be excluded by virtue of the insured or the fund becoming insolvent, provided the claim has been notified correctly and the product is not otherwise excluded.”