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The Financial Services Compensation Scheme is unsustainable and must be reformed

Chartered Insurance Institute

6 min read Partner content

Sitting down recently with PoliticsHome, Keith Richards, Chief Executive of the Personal Finance Society and Managing Director of Engagement at the Chartered Insurance Institute, calls for a new, balanced Financial Services Compensation Scheme (FCSC) from the Budget that will best serve business and consumers.

The Personal Finance Society (PFS) was set up fifteen years ago under a Royal Charter, shared with the Chartered Insurance Institute (CII), in recognition that the insurance market was changing in both shape and direction.

“When I was appointed as Chief Executive over seven years ago, my objective was to work out how we evolved the role and purpose of a modern, relevant and inclusive professional body,” said Keith Richards, Chief Executive of the Personal Finance Society.

Working in financial services for thirty years, predominantly in insurance and financial planning, Mr Richards leads on both regulatory and policy for the PFS and the CII where he is also Managing Director of Engagement.

“We deliver knowledge in practice to deliver the right consumer outcomes. That aligns us a lot closer to regulators because our overarching objective is to raise public confidence and trust,” he explained.

“We work quite extensively with regulators to make sure that the things that worry policymakers are better understood so we can turn them into professional learning outcomes and ‘good practice’ case studies.”

The PFS is the largest professional body for financial planners and people in the personal finance sector in the UK and represents almost 90% of the financial planning community.

They work on a range of initiatives with government, including pro-bono free financial guidance programmes for the public.

Focussed on the end result for consumers, Mr Richards was keen to emphasise that the PFS’s efforts are directed “not just on technical competence, but also cultural behaviours.”

With the upcoming Budget from the new Chancellor, the PFS and the CII have a strong consensus in improving diversity and inclusion, greater access to advice and protection and inclusive careers across the profession.

FSCS Levy reform

The PFS are urging the Government to create a new balanced system of collecting levies from the Financial Services Compensation Scheme (FSCS). This is in order to reduce overall cost to small businesses, due to the marked increase in Professional Indemnity Insurance premiums, pricing businesses out of the market.

This, Mr Richards described, is restricting the number of advisers who are prepared to give advice and means consumers can't get the advice that they've been mandated to take.

Mr Richards described how many firms are now at risk to compensation claims without any PII in place, they're likely to start collapsing into the Financial Services Compensation Scheme.

“The big issue at the moment is protection schemes are really there to give people that confidence to engage the market and that little bit of comfort of knowing that if it goes wrong, there's something there as a backup.”

He warned that the problem is that scheme has been increasing in cost year on year with an unquantifiable level of past legacy risk, leaving it unsustainable and in need of reform.

At present, anyone with a Defined Benefit Pension must transfer their funds in order to access pension freedoms. However, for those with more than £30,000, it is mandatory to receive regulated advice before they make a final decision to transfer.

“If people can't get the advice they need, then they haven't got the freedom of choice that government have promised them,” he said.

“Firms are already closing up shop or facing massive liabilities that they can't simply afford.

The effects of this increase are also having a knock-on effect for consumers, which the PFS is keen to address.

“The unintended consequence of PII pulling out the market, and fewer advisers being able to operate, perpetuates the problem that people can't get access to the advice they need.”

Alongside reforms to the existing scheme, Mr Richards proposes combining this with improving public financial awareness and education, giving consumers the “confidence to engage in markets by knowing that there is compensation support in place, should things go wrong.”

“We've come to a critical path where personal finance absolutely needs to be bought back onto the policy agenda. Therefore, the PFS is calling for Government to launch another Financial Advice Market Review to pick up on an unfinished first attempt”

Insurance Premium Tax

The emphasis on protecting consumers, and especially the most vulnerable is a priority that extends through Mr Richard’s agenda.

The PFS and the CII are supporting the calls from other market bodies and from individual businesses to cut the Insurance Premium Tax rate. The rate has doubled to 12% since 2015 and has led to the increase in premium rates charged by insurers.

This he said, is having a “devastating impact” on the most vulnerable and their families.

Cutting the rate of Insurance Premium Tax, they hope, should lead to cheaper premiums and make the product more accessible to vulnerable consumers.

“We are very concerned about any further increase in insurance premium tax reform. We think that it's already gone too far. It's making insurance look and feel too expensive,” he said.

“I think it’s a real shame that Government is wrongly seeing the protection against risks people face in life, as a way of generating revenue.”

He said that the Government has “missed their core, overarching responsibility to hardworking people in this country by targeting probably what they saw as a soft target to raise tax revenue.”

“It is right to challenge the government whether they've gone too far, so that we make insurance more accessible,” he said.


Alongside their work to protect consumers, the CII and the PFS are working hard to drive interest and skills in the sector.

They are supportive of the Apprenticeships Levy, and feel it mostly works for members. However, they are calling for certain reforms from the Chancellor.

For example, the inclusion of resit costs for professional qualifications under the scheme, and a portion of the fund to be used for administration costs for the for Levy paying firms.

“What's really inspiring is the apprenticeship scheme has helped us to attract people into a sector which is increasingly being seen as a profession.”

Last year over 30% of the PFS Aspire apprenticeship programme graduates were women below the age of 37.

“That's quite a dynamic change for us because often the gender imbalance we've seen wasn't created in the last 10 years it was created 30 years ago when culturally the profession was a very different place,” said the Chief Executive.

“Hopefully it should inspire the Government to do more to encourage people in through the apprenticeship route.”

With Brexit dominating the agenda in recent years, Mr Richards feels there is a need for the Government to work with the profession and lead improvements, rather than relying on regulators to do so.

“I think we need the Government to start to work with sectors to address for the greater good of the public, rather than just their policy objectives,” he said.

“There's a wider piece that I'd like to see on the political agenda that actually gets our executive team (our elected politicians) back in charge of policy. Rather than our compliance teams (the regulators).

“It isn't about the market; it is about the public that the profession serves.

“If we tackle their needs first, then there will always be a thriving need for both insurance and financial planning sector.

Both sectors continue to change people’s lives for the better.”

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