FCA launches discussion on improving FSCS

The FCA has published a discussion paper aiming to improve the Financial Services Compensation Scheme (FSCS).

The regulator body is seeking views on fundamental questions about the purpose, scope and funding of its compensation framework to ensure it continues to meet the needs of consumers and firms.

It is also committed to stabilising and reducing the size of the FSCS compensation levy over time.

Currently, the FSCS’s operating costs and compensation payments are funded by levies on financial services firms.

The overall levy has increased over the decade from £277m in 2011/12 to an expected £717m in 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.

The regulator 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. 

The FCA is also improving the financial resilience of firms so they are better able to meet their own redress liabilities and put things right for clients.

Sheldon Mills, executive director for consumers and competition at the FCA, 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.

“We are already taking action against the drivers of compensation claims — this includes our measures to reduce the impact when firms fail and to tackle misconduct in the investment market."

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