"Requiring providers to contribute should further incentivise them to design products that are well understood by intermediaries and that benefit end consumers"
The FCA has confirmed that it will require product providers to contribute 25% of intermediaries' FSCS funding requirements.
Under the proposals, providers will contribute 25% of the funding requirement for the insurance and home finance intermediation funding classes.
The investment intermediation and life and pensions intermediation classes will also be merged into a single funding class, with provider contributions.
The FCA said it introduced the proposals due to the industry expressing concern about the volatility of FSCS levies and the impact of this on intermediaries in particular.
The regulator argued that "the link between distributors and providers has been made clearer and providers cannot completely disassociate themselves from sales of their products".
The FCA admitted that the vast majority of providers 'strongly opposed' the proposals, with some arguing that "they have no oversight of intermediary behaviour and so should not be expected to be responsible for it".
However many intermediaries argued for the level of provider contribution to be 75% ot 50% rather than 25%, reasoning that while they charge fees for their advice, the money from consumers ultimately flows to the providers of the underlying products who, in their view, receive most of the benefit of the sale.
In response, the FCA said: "We think that requiring providers to play more of a role in contributing to the FSCS reflects the fact that these firms benefit from overall confidence in the UK market and the structures that exist for the distribution of products to consumers.
"Requiring providers to contribute should further incentivise them to design products that are well understood by intermediaries and that benefit end consumers, and to understand and exercise control over their distribution chains. The proposal will also help to make sure that we have a robust funding model with sustainable classes that provide sufficient funding for compensation, reducing the burden on intermediaries.
"We accept that most providers do not agree with this and we have carefully considered the alternative proposals set out in responses. We have decided not to proceed with any of the alternative proposals because they add complexity and do not align with our policy intention to reduce volatility."
Robert Sinclair, chief executive of AMI, commented: “The senior management of the FCA listened to our logical arguments and agreed that these changes were sensible. We believe that these amendments to the funding of the FSCS should deliver a more balanced industry in the future. In resisting strong lobbying from the provider community, the FCA has stood up in support of smaller advice firms.”