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FCA calls for ‘fair and sustainable’ FSCS

The FCA said it is committed to ‘stabilising’ and ‘reducing’ the size of the compensation levy over time, by improving the conduct of firms to prevent harm from happening in the first place

The FCA has published a discussion paper aimed at maintaining a compensation framework that provides “appropriate” protection for consumers, funded in a “fair” and “sustainable” way.

It said the FSCS plays a “critical” backstop role in protecting consumers and ensuring “confidence” in financial services markets.

The FSCS’ operating costs and compensation payments are funded by levies on financial services firms. The overall FSCS levy has increased over the last decade, from £277m in 2011/12 to an expected £717m for 2021/22.

According to the FCA, 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.

This pipeline of historic claims is expected to result in further FSCS payouts over the coming years.

The FCA said it is committed to “stabilising” and “reducing” the size of the compensation levy over time, 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 added it is also improving the financial resilience of firms so they are better able to meet their own redress liabilities and put things right for consumers.

Sheldon Mills, the FCA’s executive director for Consumers and Competition, said: ‘We want consumers to have trust in a thriving UK financial services sector, and businesses to be confident that they can bring new and innovative products to market.

“To achieve this, it is vital that consumers have an appropriate level of protection if things go wrong – and that we find a fair and sustainable way of funding the cost of this protection. Now is the time to ask how we can ensure our compensation framework is fit for the future.”

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