AIFA accepts the need to compensate consumers who have legitimate claims but is concerned about the impact of a levy being placed on all firms at this difficult time.
Chris Cummings, Director General of AIFA, said: "We have been aware that PCS has been approaching default for some time. It is right that the Compensation Scheme performs its function to compensate consumers with legitimate claims. However, we are concerned as PCS sits in the ‘investment intermediation' subclass of the compensation scheme and many IFA firms have exposure to this block. The financial ramifications of the projected high levels of compensation are severe for our members as a levy will be placed on all firms in this class.
"The intention of the FSCS to raise a levy of £40 million from this subclass risks the financial stability of good firms in what is already recognised as being one of the most difficult trading years in over a decade. The levy will be part of the annual Financial Services Authority (FSA) fees. We have a genuine concern that the combined impact of these fees and falling revenues will put members under severe financial strain.
"We have been in discussion with FSCS on this issue. We are pleased to recognise its desire to work with the industry and its understanding of the detrimental impact placing PCS into default will have on all firms in this subgroup. While legitimate claims must be paid, there are important questions that now must be answered given this new regulatory failing.
"We must ask FSA why this firm was allowed to gain authorisation and then operate a flawed business model for so long. This seems to be yet another case of regulatory failure and the fault must be acknowledged by FSA. Good firms are now being forced to pay for the misdeeds of bad ones. An immediate enquiry into the circumstances that led up to this situation is needed. Further, we expect FSA to come to the table with proposals for helping firms meet this new, unexpected levy."
