The Financial Conduct Authority (FCA) has published a Discussion Paper looking at the Financial Services Compensation Scheme (FSCS), which aims to maintain a compensation framework that provides appropriate protection for consumers, funded in a fair and sustainable way.
The FSCS is the UK’s statutory ‘fund of last resort’ for customers of authorised financial services firms, funded by levies on financial services firms. It provides compensation when certain authorised financial services firms are unable, or likely to be unable, to meet claims against them.
The overall FSCS levy has increased over the last decade from £277 million in 2011/12 to an expected £717 million for 2021/22. Many of the claims driving these costs relate to historic misconduct by firms in the investment sector, including financial advisers and Self-Invested Personal Pension (SIPP) operators, which have subsequently failed.
The FCA is seeking views on fundamental questions about the purpose, scope and funding of the FCA’s compensation framework to ensure it continues to meet the needs of consumers and firms.
The Discussion Paper is split into seven chapters:
- Introduction
- The FSCS as a ‘fund of last resort’ and work to address the root cause of high compensation liabilities
- What regulated activities should be protected under the scope of the FSCS?
- Who should be eligible to claim compensation from the FSCS?
- What is an appropriate level of compensation to be paid to an individual claimant?
- Can improvements be made to how the FSCS is funded?
- Proposed design principles and further opportunities for change
The FCA is taking action to address the root causes of the increase in compensation liabilities by encouraging an improvement in the conduct of firms to prevent harm from happening in the first place. It will also continue to encourage firms to improve their financial resilience so they are better able to meet their own redress liabilities and put things right for consumers.
The Discussion Paper is open until 4th March 2022, any responses can be sent via an online form or by e-mail to dp21-05@fca.org.uk A Feedback Statement will be published during 2022 which will include any intended further steps.
For further details on this story, or any compliance-related topic, contact our expert team on 01925 767888, or e-mail helpline@ukgigroup.com.