It poses a question about accountability
The Gloster Report into #LCF is a damning indictment of failures at the FCA – Whilst my blood boils on behalf of millions of victims of financial failings, even more angry that Treasury Select Committee & Treasury missed the opportunity to re-interview Andrew Bailey before rewarded him top job at the #bankofengland- despite them having our Asleep at the Wheel report on their desks detailing his abject failings – and as we stated then
“his legacy is a toxic cocktail of negligence, incompetence and indifference to the needs of ordinary depositors, investors and pensioners.”
In todays Mail on Sunday Jeff Prestridge says the #regulator let down ALL #investors .Since 2012, via our True and Fair Campaign we’ve been saying the FCA is not fit for purpose & calling for a root & branch review. How many more victims before this happens?
Like the Independent Reviewer’s report into the £100m lost to the Connaught Income Fund, the £236m lost to LCF happened because of regulatory failings. Worse is to come with the revelation by BBC’s You and Yours team that over £2bn is missing feared lost from Dolphin Trust. Much of this money was lost through FCA authorised SIPP platforms.
Is the FCA value for our money?
The price we pay to regulators suggests the consumer should hold them accountable for the value they give for the money they take. Regulators are funded either out of general taxation (from us all) or from levies on the financial products consumers use. These levies become part of the costs and charges we pay to the financial services industry. This simple linkage is often missed when regulatory responses are being assessed.
The FCA has responded on the Connaught report
But none of this makes it any better for those defrauded, nor is it any comfort to those who are going to have to pay the levies for the compensation that will follow.
Who pays the compo?
Compensation for the regulatory failures can come from a number of sources. It can be met by the taxpayer by means of a general bail-out, it can be paid by financial services companies if fines can be ringfenced and met by shareholders or they can be met by consumers, where fines are passed on by means of higher costs. Unfortunately, levies – which are the Government’s favored means of raising money for compensation fall equally across the pensions industry and (like rising professional indemnity costs) simply push up the price of the services on offer.
There is an argument that the failings of the Regulator should be paid for by the Regulator but this is tokenism. While I support docking the bonuses of those who have failed the consumer, there is little that can be clawed back relative to the hundreds of millions that have been lost – and could be claimed.
Talking of levies…
As well as the levy to meet claims against the Financial Services Compensation Scheme there are other levies to meet the costs of the FCA and a general levy on occupational and personal pension schemes. The general levy recovers the funding provided by the DWP in respect of the core activities of The Pensions Regulator, the activities of The Pensions Ombudsman and part of the activities of the Money and Pensions Service.
I am not sure if anyone has totted up all the levies to provide us with pension protections (we mustn’t forget the amount paid to the PPF by occupational schemes). The sum total is unlikely to reduce shareholder’s profits by much, I suspect the vast majority is passed on to savers by way of charges.
This brings me to the third question for this blob…
How are levies levied?
FCA levies are measured against turnover and this does provide some alignment with the capacity of shareholders to pay. However , the DW levies are linked to the numbers of members covered. The DWP is currently concerned by the number of small pots in occupational schemes (especially AE master trusts). They should be but to a large degree the problem is causing issues for all savers, and is of the DWP’s making, The general levy hits schemes with large number of small pots hardest. These are the schemes that have done most of the heavy lifting to make auto-enrolment work.
Inter connected questions and interconnected solutions
The small pots issue is made worse by the general levy and I hope that the small pot working group will contribute to the levy consultation. I hope too that the two reports on Connaught and LCF.
It would be wrong for the costs of FCA failings to be met by consumers as it would be wrong for the general and PPF levies to raise the price of the financial services we buy. We need better accountability and we need these risks to be understood and born by shareholders.
The questions in this blog are about regulatory accountability, about who pays compensation and how levies are levied. These questions are interlinked and together merit a wider review. Perhaps this is the kind of issue that could sit with a pension commission, though I suspect that it is within the scope of the House of Lords and Commons to deal with this on an all party basis.