FSCS levy. We’re captive on the carousel of time

Mark Neale the boss of the FSCS is looking for advisers to come up with a cunning plan to better fund the behemoth.

A particularly timely comment given that life and pension advisers are being levied for some £100m for the 2015/16 year, up 75% on a prediction some 3 months before and some 3 times the amount levied on them for the previous year.

In a less than comforting way, Mr. Neale reckons that the current 3 year funding model is functioning “reasonably well.

This will become the industry that ate itself. Fees within the industry are simply parasitic. Sometimes a parasite/ host relationship can work well but when the natural balance is removed the host, in this case the IFA community and by way of unaffordable costs for doing business, it sees itself being eaten from within until it dies.

Forget capital adequacy as being relevant in any way at all. In this case increasing, unpredictable fee increases will see fewer firms being able to afford to pay them, closing down with liabilities passed to the FSCS. Fewer firms mean higher costs for those left…..and those ‘painted ponies’ just go round and round until nobody is left on the ride.

Surprisingly many seem unaware that the huge FCA fines levied on the banks and others are no longer used to reduce the regulatory cost on firms who had ‘done the right thing’. The original regulatory intention.

Why?

Because a statute, ‘laid before Parliament’ in February 2013, that went into force on 1st April 2013 that made sure that those vast fines would be legally ‘skimmed off’ to benefit the Treasury, who perhaps with some sense of cynicism could have been privy to some ‘inside knowledge’ on how big those fines were going to be.

Only today we hear that Lloyds has been hit with the largest ever PPI claim fine of £117m.

Banking fines for 2014 were £1,462bn To put some contextual scale to this massive amount, the total revenues raised for alcohol and tobacco in 2014 was £197bn- that equates to 4% of total UK taxation revenues according to HMRC figures.

The FCA was obliged by statute to pay away £1.370bn of the fines the Treasury, the equivalent of 70% of alcohol and tobacco levies for 2014.

So here is a thought Mr. Neale.

The biggest obstacle to consumers getting easy access to independent financial advice is cost.

The biggest cost to financial services firms after salaries are for regulation.

Surely it does not take too much cerebral activity to calculate that with the FCA costs of £264m plus the FSCS budget of £319m, mega fines exceed regulatory costs by £888,431,800.

This should mean that offsetting fines against the cost of regulation and compensation levies could give the industry ‘good guys’ a ‘fee free ride’ for over 2 years and those hard pressed ‘consumers’ or give “low end savers” as Mark Garnier MP calls them, access to financial advice at a very much reduced cost as they can benefit too from the reduction in the regulatory cost burden.

Dare I suggest that these fines should be used to fund the FSCS?

Based upon the current budget at least 4 years looks possible, again reducing costs for consumers?

That would be a very moral, even sensible use of such large fines would it not Mr. Neale?

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Pension freedoms. Doing something stupid not knowing it is really stupid

I read with some interest and considerable concern the awful story of a unicyclist in Hoe Street, London E17 who collided with and got trapped under a route 210 London Bus. What followed was a fantastic example of people power from some 50 or so people who tried and succeeded to lift the bus of the trapped man allowing him to be taken to hospital, in a very serious condition.

Earlier in the same week two women were killed in separate London incidents involving trucks.

Cycling in London is not the safest of activities as many cyclists who have had a ‘near death’ experience with HGV’s would attest. Heavy goods vehicles are responsible for over half of all cyclist deaths in London, a third across the UK as a whole.

But, despite these numbing statistics, the E17 unicyclist is a perfect example of somebody doing something stupid while being quite oblivious of the fact that most others would see it as extremely stupid.

Cyclists and other road users are warned over and over again to exercise extreme care in London and other busy cities. Cyclists are told not to undertake trucks, especially at road junctions. Trucks have signs advising caution and many are now fitting a vast array of safety devices to warn the driver of collision possibility.

For many who have driven in London, especially in peak commute times, the car driver experience of cyclists use of the road is simply terrifying and I suspect it is a mutually shared state of terror for those on two wheels.

But the two wheel brigade in London (and I count my self as an occasional member of that club but not in London) test the ‘nine lives’ principle to the very edge. For so many cyclists, traffic lights are simply a suggestion, pavements and zebra crossings are their cycle superhighway if one does not exist and if you hit a cyclist, or they hit you as they weave precariously from one driver blind spot to the next, heaven help you.

I cannot help noticing that despite the rules of the road, defined by the Highway Code and the Road Traffic Act, attempting to provide a sense of order and a feeling of safety for all road users, it does not always work out that way. All because some road users do something stupid, unlike the unicyclist, knowing it is really stupid and expect others to take responsibility for their stupidity.

So, why am I rambling on about this?

Because the analogy of linking cyclists, HGV’s, responsibility and common sense could be applied to be safeguarding people’s retirement funds.

We now have the ‘fiscal unicyclist’ about to do something stupid, not knowing it is stupid because……..the government says they can ‘cycle’ but without any proficiency training, test or understanding of the dangers.

Last week it became clear that for one major provider, 70% of savers exercising their new ‘pension freedoms’ withdrew the lot in the first 6 weeks of the so called pension revolution coming into force.

Yet only 3% of those savers who contacted the firm had spoken to Pension Wise!

Panacea predicts that the ‘harvest outcome’ from pension freedoms will be “the next PPI scandal”. The Government is giving retirees the freedom to do what they want with their ‘hard-earned’ and those pension reforms and freedoms are about to present the same risk opportunity to investors and pensioners that Hoe Street E17 offered the unicyclist. Their road will be fraught with some very clear dangers and many that are hidden.

Regulation and legislation needs to catch up with the retirement superhighway quickly as I suspect that those retirees who are doing their Lamborghini based ‘risk assessments’ may expect, but not get, public sympathy if they decide to do something stupid.

Warnings will be ignored and the rogues devising cunning plans to no doubt deny many the retirement they have saved for will not care at all about the damage and stress caused their selfish, boorish, poorly regulated behaviour.

They say that wherever there is blame there’s a claim. If ever there was a time to urge caution it is now.

Which brings me back nicely to the unicyclist.

If you aint cheating, you aint trying

So Barclays has been hit with the biggest UK bank fine in history. Although top of the league, they join another six banks who between them have been fined some $6bn for a ‘stitch up’ of the foreign exchange markets.

Barclays FCA fine share is around £284m although that will soon be off to the Treasury for ‘good causes’ use and not reducing regulatory costs for the ‘good guys’ as it should.

A further $400m on it’s way to the Commodity Futures Trading Commission and $485m to New York’s Department of Financial Services.

At this stage I feel a pause for breath is needed………

If ever proof was needed that banks are too big to fail and a moral compass reset is needed, this is it.

Why?

Well for a start, unbelievably, Barclays shares rose 3% after the announcement, and RBS’s rose 2%, all fuelled no doubt by profuse apologies and the usual ‘blowing smoke up rear’ platitudes around putting things right with an added heavy bonus layer of remorse from Barclays boss Antony Jenkins saying “the misconduct at the core of these investigations is wholly incompatible with Barclays’ purpose and values and we deeply regret that it occurred,” .

Such ridiculous and frankly insincere phrases simply heap insult on all those very good regulated businesses run in a compliant, customer focused way.

If ever there was a time to see some serious regulatory action taken, ie ‘go to jail, do not pass go’ this is it.

And if ever there was a time to suspend firms from their casino banking activities for a period of time to enable reflection this is it.

In October 2013 we heard thatSir Hector Sants is taking a leave of absence from Barclays due to exhaustion and stress and is expected to return in the New Year”. A headline that appeared at the time to get little adviser attention

Less than a month later we heard that Sir Hector had resigned after less than a year in post.

I think we may now have a better understanding of what that stress was actually all about and why he quit?