Compliance

FCA Launches Consultation On Changes To FSCS Rules

Amisha Mehta, Deputy Editor, London, 15 December 2016

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The UK financial watchdog is asking for responses by 31 March 2017 before publishing final rules and a further consultation paper on proposed rule changes next Autumn.

The Financial Conduct Authority has launched a consultation on changes to its Financial Services Compensation Scheme rules, and is inviting views on the future funding of the scheme.

The FSCS is the UK’s statutory compensation scheme of last resort, which can step in when a financial services firm is unable, or likely to be unable, to pay claims against it. Firms from across the industry pay levies to fund both the FSCS’s operating costs and the compensation it pays out.

The rules were last reviewed in March 2013 and since then, the scale and impact of FSCS levies has risen sharply for some firms, the regulator said in a statement. In 2014-2015, the scheme paid out £327 million ($510 million), a 34 per cent jump from a year earlier.

The FCA is now calling for input on several options for funding of the scheme, 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 FCA rules include Lloyd’s of London appropriately, in circumstances where they could be called on to contribute

It is also asking for feedback on the professional indemnity insurance (PII) market and the coverage that it provides – specifically, the FCA is considering proposals to make PII more effective through the introduction of mandatory terms. 

Other options it is calling for input on include 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; and exploring the potential for FSCS levies to better reflect the risks posed by particular practices.

“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.”

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