FCA scraps plan to penalise brokers for unrated insurer use

The FCA has abandoned proposals to charge brokers an additional risk-based levy for placing business with unrated insurers.

The proposals were made in a consultation last  December about future funding for the Financial Services Compensation Scheme (FSCS).

The proposals followed two high-profile failures of unrated insurers in 2016 – Liechtenstein-based Gable and Gibraltar-based Enterprise.

But in publishing final rules based on the December consultation today, the FCA revealed that it had abandoned the plans to impose the extra FSCS levy on brokers using an unrated insurer.

The regulator said that “a few respondents” to the December consultation had supported applying an additional risk-based levy (RBL) for unrated insurers, but the majority of respondents did not support it.

The FCA said respondents argued that there is no evidence to suggest that unrated insurers are more likely to fail than rated ones.

Respondents also pointed out that the proposals could hurt mutual and small insurers.

The regulator said: “We will not be exploring applying RBLs to brokers who place business with unrated insurers due to valid concerns raised in responses, such as the negative effect this would likely have on small and mutual businesses that do not, or are not required to purchase a rating.”