Levies for 2016-17: paying for trust
Today we published our levies for 2016/17. They total £337m. This is lower than the indicative number we published in January of £363m, but marginally higher than the 2015/16 levy of £319m. There is also the expected bank legacy costs levy later in the year for the same amount.
Now, of course, these levy numbers are published at a time of intense debate about how FSCS is funded. I’m sure they will be further grist to that mill, though perhaps there is some relief in the relative stability of the levy this year.
Not only is the overall levy little changed year-on-year, but there is also continuity in the levies of advisers. So the volatility, which is so difficult for small business to manage, is at least less pronounced.
There are, of course, no guarantees beyond 2016/17 (or that there will not be a supplementary levy this year). Volatility is always likely to be feature of a pay-as-you-go funding system as experience shows.
That is why I welcome the debate our funding and frequently write about it; I did so last month in response to the report of the Financial Advice Market Review. I’m sure I’ll get plenty more opportunity as the FCA’s review of FSCS funding gets under way. It will run for the best part of a year.
So let me, on this occasion, comment on a different angle: the rationale for having a levy at all. This can all too easily be lost sight of.
At the heart of this case is trust.
Many consumers find financial products intimidating and hard to understand. They don’t, therefore, approach buying these products with the same confidence they would many other services.
What’s more, there’s often a lot more at stake. Consumers’ income in retirement can depend crucially on the advice they receive or the product they buy.
FSCS sees many cases where people’s life savings are at stake.
FSCS protection bridges this confidence gulf. It provides the assurance many people need to enter the market. As such, it underpins the market for financial products. Indeed, independent research shows people knowing FSCS exists reassures them and increases their trust in firms.
This is brought home by many individual claimants who tell us that the success of their claim to FSCS – and the compensation paid – has restored their trust in financial services.
We also saw it in research we published last Autumn which showed that many people were deterred from seeking financial advice because they were unaware of FSCS protection and were afraid they’d be left high and dry if badly advised.
So, in effect, the levy is buying the trust which gives people the confidence to buy financial products.
That is why – notwithstanding the deep concerns about how the levy is allocated among firms – the industry continues to support FSCS.
It’s also why we, in FSCS, will be pressing the case, as part of the funding review, for harmonising our protection, particularly for retirement savings, so that it is more readily understood by consumers.
The better understood FSCS protection is, the more it will build trust in financial services.
That is what the levy is buying.