The FSCS wants to raise intermediaries’ levies again, which could spell disaster for smaller brokers

The financial services compensation scheme (FSCS) announcement in its quarterly newsletter that it is set to raise levies by a further £20m could mean even higher costs for brokers at a time when several significant regulatory developments are coming into force.

The FSCS half-year review, Outlook, indicates that the scheme is likely to levy the millions from insurance intermediaries during the first quarter of 2013 in order to pay for an increasing number of payment protection insurance (PPI) claims.

The report states that costs for 2012 were higher than estimated, particularly owing to PPI claims from claims management companies. Roughly two-thirds of PPI claims the FSCS receive are brought in by claims management companies and average compensation payouts per claim has also risen.

Should insurance intermediaries’ FSCS levies rise, those likely to be affected hardest are smaller brokerages whose costs have already increased by up to 10 times since 2009.

Biba chief executive Eric Galbraith described the price rise as “another kick in the teeth for firms that have not been involved with payment protection insurance.”

Efforts by Biba to persuade the FSCS to divide its insurance intermediary subclass into ‘pure’ insurance brokers and other intermediaries include a detailed report prepared by Oxera highlighting the difference between the approximately 3,500 professional broking firms from the 10,000 other firms in the subclass.

So far, the FSA has ignored calls for FSCS costs that reflect brokers’ financial activities, and brokers are saying that this year they have had to paddle harder just to stay where they are.

The spiralling costs of compliance are one of brokers’ most serious concerns, and 2013 is set to be an expensive one in terms of regulation. The FSA’s proposed client money rules are already proving to be a headache for many companies and the splitting of the FSA into the FCA and PRA is a further worry for firms as FCA boss Martin Wheatley has indicated that the new regulator will be a more hands-on organisation.