The FCA believes more firms will be able to provide proactive redress to consumers where they’ve caused harm and, over time, reduce the time consumers wait for redress.
The authority also stated the framework should lead to fewer firms failing because they can’t meet their redress costs, thereby reducing the burden on the Financial Services Compensation Scheme.
Additionally, since FSCS compensation is capped at £85,000, the FCA expects consumers will have fewer uncompensated losses.
It should incentivise firms to provide good advice in the first place and avoid causing harm from the outset.
Reaction
In response to the authority’s announcement, Quilter chief executive Steven Levin, said he was “fully supportive” of the polluter pays model.
“While we need to understand the detail, it is likely that quality firms will broadly support this type of reform, which could serve to build trust with consumers and give greater confidence in advice in the longer term,” he added.
Levin also stated that, while it may create additional work for smaller firms, it is “better than the current unpredictable and significant ad-hoc costs under the FSCS”.
A similar sentiment was shared by Pimfa chief executive Liz Field, who said: “We strongly believe in, and have argued the case for a number of years, for a ‘polluter pays’ model.”
But Field stressed “the need for these proposals to be proportionate”, and specifically not to act as a “barrier” to firms wishing to enter the market.
In addition, the Lang Cat director of public affairs Tom McPhail cautioned that, if the capital reserving requirements were “too broad” they could become an “expensive addition to the cost of doing business in their own right”.
“Hopefully the proposals will take account of the practices and processes of responsible and well-run businesses, thereby ensuring they see a net reduction in their overall cost of doing business as a result of these measures,” he added.
Next steps
The authority acknowledged that it has been unable to engage with a wide variety of stakeholders before launching the consultation and, as a result, announced it would extend the period for the consultation and responses to be received to 16 weeks.
“We are really keen to hear views and encourage anyone with an interest to respond to the consultation,” it said.
The FCA concluded by stating: “We believe we have put forth a package of measures that will really help the advice sector to flourish and deliver good consumer outcomes.”
tom.dunstan@ft.com
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