The Financial Conduct Authority has said it is still open to reducing the amount of FSCS protection afforded to investment advice, following feedback to its compensation framework review.
In its discussion paper last December, the FCA explained that the scope of the FSCS protection was broad – covering claims relating to deposits and insurance and investment business, home finance intermediation, insurance distribution, debt management and, since July this year, funeral plan business.
The FCA pointed out that the scope of activities protected by the FSCS was broader than similar compensation schemes in other jurisdictions.
Yet, despite this broad scope, the FSCS does not protect some regulated activities.
At the time, the City watchdog said investment advice could be excluded from FSCS protection and asked the industry for feedback on whether the scope of protection should be aligned with other jurisdictions.
Respondents to the FCA's discussion paper expressed concern about withdrawing protection from investment advice, though they did express support for reducing protection afforded to certain non-standard or high-risk investments.
In response, the FCA said it remained open to reducing the amount of protection afforded to investment advice but it said it would only do so if "appropriate safeguards" were in place.
Removing investment advice from FSCS protection would reduce the FSCS’s scope and mean that consumers suffering financial losses as a result of the failure of an investment intermediary would not be protected by the compensation scheme.
In its feedback statement published today, the FCA said it did not receive many calls for significant changes to the scope of FSCS protection.
“For example, few respondents supported removing protection for investment advice, even though compensation schemes in other jurisdictions do not typically cover claims for investment advice,” it said.
Respondents saw that protection for investment advice represented an important aspect of consumer protection which benefited consumers and the wider financial services sector in the UK.
However, many respondents were supportive of the FCA considering a reduction in the protection available for certain non-standard or high-risk investment types or the activities associated with them such as distribution and advice.
These respondents believed that such claims are contributing to a high proportion of overall FSCS compensation costs and were an indicator of the harm being caused by firms providing bad advice to consumers to invest into non-standard assets.
The FCA said: “After considering the feedback received, we remain open to exploring further opportunities to restrict the scope of protection to potentially exclude certain activities or product types in the future.
“However, we are clear that before we can make any such changes, we need to ensure that all the appropriate regulatory safeguards are in place to protect consumers from harm.”
One example it gave was that there may be benefits in exploring restricting protection to exclude certain non-standard asset types, which it does not consider are suited to typical consumers.
