Context
The Financial Conduct Authority (FCA) has published a Discussion Paper which aims to maintain a compensation framework that provides appropriate protection for consumers, funded in a fair and sustainable way. The Financial Services Compensation Scheme (FSCS) is the UK’s statutory ‘fund of last resort’ for customers of authorised financial services firms. It provides compensation when certain authorised financial services firms are unable, or likely to be unable, to meet claims against them. Their operating costs and compensation payments are funded by levies on financial services firms.
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.
Key points to note
- 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 assertive action to address the root causes of the increase in compensation liabilities by improving the conduct of firms to prevent harm from happening in the first place. It will also be improving the financial resilience of firms, so they are better able to meet their own redress liabilities and put things right for consumers.
Next actions
The Discussion Paper is open until 4th March 2022, any responses can be sent via an online form or email to: dp21-05@fca.org.uk A Feedback Statement will be published during 2022 which will include any intended further steps.