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The Financial Conduct Authority (FCA) has today announced that it is inviting views on the future funding of the Financial Services Compensation Scheme (FSCS) and has also launched a consultation on a number of specific changes to its scheme rules.
The FSCS is the UK’s statutory compensation scheme of last resort, which can step in when an authorised financial services firm is unable, or likely to be unable, to pay claims against it. Firms from across the financial services industry pay levies to fund both the FSCS’s operating costs and the compensation it pays out.
The rules for the FSCS were last reviewed in March 2013 when the Financial Services Authority concluded a review of the scheme’s funding and published final rules. Since then, the scale and impact of FSCS levies has risen sharply for some firms.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
The Financial Services Compensation Scheme plays a vital role in ensuring consumer confidence in financial services.
We want to ensure protection for consumers and fairness for firms that pay for the compensation. We want to have a full debate with all interested stakeholders and this paper sets out the range of fundamental issues we want to discuss.
The FCA is inviting responses on a number of options for changing both the funding of the FSCS and the coverage it provides to consumers. These options include:
- asking for feedback on the professional indemnity insurance (PII) market and the coverage that it provides – the FCA is considering proposals to make PII more effective through the introduction of mandatory terms
- introducing product provider contributions towards intermediation claims
- changing the FSCS funding classes for intermediation activities
- updating limits on consumer coverage in light of the pension freedoms
- exploring the potential for FSCS levies to better reflect the risks posed by particular practices.
The FCA is also consulting on a number of specific proposals to change rules affecting the scope and operation of FSCS funding, including:
- amending payment arrangements so that firms may be asked to pay a proportion of the levy on account
- introducing FSCS coverage for debt management firms
- extending coverage in respect of fund management
- applying FSCS protection to advice and intermediation of structured deposits
- ensuring that FCA rules include Lloyd’s of London appropriately, in circumstances where they could be called on to contribute.
The FCA is asking for responses to its Consultation Paper by 31 March 2017 before publishing final rules and a further Consultation Paper on proposed rule changes in Autumn 2017.