FSA told to help IFAs meet 'unexpected' £40m levy

The Association of IFAs (AIFA) has told the regulator it must help adviser firms meet a possible extra £40m burden on their annual FSA fees.

According to AIFA, advisers will bear the brunt of an FSCS decision to place stockbroker Pacific and Continental Securities (PCS) into default.

It says PCS sits in the 'investment intermediation' subclass of the compensation scheme which many IFA firms have exposure to.

AIFA director general, Chris Cummings, says the levy will be part of the annual FSA's fees and that the combined impact of these fees and falling revenues will put members under severe financial strain.

The FSCS has confirmed around 4,500 people may be eligible for compensation of up to £48,000 each, with current estimates putting the likely costs of the default between £40m and £70m.

Cummings says that, whilst the trade body accepts the need to compensate consumers who have legitimate claims, it is concerned about the impact of a levy being placed on all firms at this difficult time.

"The financial ramifications of the projected high levels of compensation are severe for our members as a levy will be placed on all firms in this class," he says.

"We must ask the FSA why this firm was allowed to gain authorisation and then operate a flawed business model for so long."

Cummings calls the case another regulatory failure and says the fault must be acknowledged by the FSA.

"Good firms are now being forced to pay for the misdeeds of bad ones. An immediate enquiry into the circumstances that led up to this situation is needed.

"Further, we expect FSA to come to the table with proposals for helping firms meet this new, unexpected levy."