PIMFA Priorities 2021

Having spent the last year adapting to ‘uncertain times’, the recent vaccine breakthroughs at last allow us to look beyond the current pandemic to the long-term opportunities and prospects for our industry and how we use these to deliver better outcomes for our firms and their clients.

In line with this, PIMFA has reviewed our priorities for this year and at the top of the list remains reform of the FSCS, alongside the attendant difficulties with the availability and cost of Professional Indemnity Insurance (PII) and the future direction of regulatory supervision.

After major disappointment at yet another year of increased FSCS levies, there is a recognition that this cannot continue and we are working closely with Government & the regulator to find an effective way forward. Indeed, Tim Fassam, our Director of Government Relations and Policy, gave evidence to the House of Commons’ Work and Pension Select Committee inquiry in September highlighting our concerns about consumer detriment, our belief that the ‘polluter should pay’ & that this is ultimately an issue that can only be solved with holistic change.

Individual firm failures erode trust in all regulated firms and undermine consumer confidence. Equally, the costs associated with these supervisory failures – e.g. FSCS and PII premiums – materially impact on cost structures, damaging competitiveness and innovation. These increased costs also negatively impact consumers by widening the advice gap. Today, fewer than 10% of UK consumers access financial advice, with many who don’t pointing to the cost of advice as a reason why they do not.

In our policy paper, ‘A rising tide lifts all boats?: A roadmap towards better consumer outcomes and lower levies’, released late last year, we argue that, without a wholesale review of the fundamental drivers of calls on the FSCS, the total compensation bill will continue to rise for all advisers and wealth managers regardless of any review of the levy’s construction.

As a first step towards bringing the FSCS levy back under control, we propose that the FCA fines imposed on firms for regulatory failures contribute to funding the FSCS rather than being paid to the Exchequer, limiting levy increases to a more manageable level or, potentially, reversing FSCS levy increases altogether.

We are also calling for the FCA and FSCS to increase efforts to recover funds from firms or schemes that have failed and ensure they take action in all cases that could reduce a potential levy payment for firms in the same class.

Equally high on our list of priorities is the ongoing dysfunction which is present in the PII market. Our recent research suggests that only 17% of PIMFA members feel confident in their ability to secure affordable PII cover in future.

Of even greater concern is the fact that over half reported that their current PII cover contained certain restrictions or was not universal in coverage of their back book. This is extremely concerning to us. The lack of affordable PII cover will ultimately see firms withdraw from the market and may in some cases mean that many default back onto the FSCS. PIMFA will be working directly with the Regulator and insurance sector over the coming year towards a better solution which encourages a buoyant PII market.

The current advice market isn’t working and we need radical measures to make advice available to everyone. So, as we focus on the future of the sector in 2021, we will shortly  release our first major paper of the year, ‘The Future of Advice’, in which we set out what we want the future advice market to look like and explain the increased need for advice in today’s society and it’s value in both financial and non-financial terms. Social and demographic changes, ranging from an aging population and the introduction of pension freedoms to increased digitalisation, have combined to make the decisions people face more complex and varied. The Covid pandemic will also have had a significant impact, increasing the need for advice.

We outline the steps we feel the Government, together with the Regulator and the industry need to take to resolve these issues. Our recommendations include reviewing both the definition of advice and the regulatory perimeter, improving on-line protection by extending the Online Harms Bill to cover scams and other financial harm and a review of and improvements to its supervisory regime. We also need to develop new, lower-cost services to provide effective financial advice to a much wider market.

And finally, Brexit itself. 2021 began with the end of the transition period, creating the environment in which to reconsider the practical application of regulation, review the architecture of the Handbook and change the rules to reflect the specifics of the UK market. We therefore have an opportunity to ask for the review of MiFID II rules that have caused detrimental and unintended consequences and aim to achieve a future regulatory rulebook that is cost-effective, does not impose disproportionate cost burdens on industry and consumers and, above all, works for UK customers.