"AIFA is highly supportive of the Compensation Scheme and believes that a fund of last resort is crucial to consumers' trust and confidence in the financial services sector. However, there are a number of fundamental flaws that leave the current Scheme unfit for purpose."
AIFA announced its intention to publish a discussion document for members outlining a number of alternative funding models for a revised Compensation Scheme.
AIFA warned against a rush to pre-funding, citing potential costs of £100 million per annum for five years for the investment class alone. AIFA also called for the inclusion of a fifteen year long-stop in the revisions to FSMA and greater engagement with the European Guarantee Schemes agenda as we can no longer view our UK Compensation Scheme in isolation.
AIFA also highlighted FSA's previous work on Leaving Resources Behind and the possibility of a product levy.
Andrew added:
"AIFA supported the use of a firm's existing regulatory capital which could in theory be held on account when a firm leaves regulation, and then returned to the firm, or shareholders, a set period (perhaps 5 or 10 years) after de-authorisation, subject to payment of any claims that had arisen.
"We would also welcome further debate on a product levy. At a time when consumer transparency of both cost of product and advice is at the heart of many of our regulatory interventions we believe that a specific cost built into a product holds some degree of merit and would foster an approach of consumer responsibility."
