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FCA Consultation on Changes to FSCS Scheme Compensation

The Financial Services Compensation Scheme (FSCS) pays out if you have lost money as a result of an authorised financial services firm going bust or otherwise being unable to pay compensation for various failings – for example a bank or stockbroker. The scheme is funded by a levy on services firms. The Financial Conduct Authority (FCA) is currently undertaking a public consultation on changes to the scheme.

At present there are limits to the protection FSCS provides which vary by financial product. In simple terms, it protects:

  1. Deposits up to £75,000 per person per firm;
  2. Investments up to a limit of £50,000 per person per firm. These include for claims relating to bad investment advice, poor investment management or misrepresentation. That is obviously a very low limit for what many people have invested via a stockbroker, either in a pension (SIPP), ISAs or directly.

It is proposed to increase those limits for certain product types (to as much as £1 million for pension funds such as SIPPs in drawdown which would more closely be aligned with the current lifetime allowance). That certainly seems a more realistic figure when the new pension freedoms are known to be promoting lots of dubious investment propositions.

In addition one of the complaints by services firms that the risky firms are subsidised by the safe ones is being tackled. One of the biggest financial burdens on the scheme has been a few very large failures of companies which many in the industry viewed as likely to fail from their dubious business practices. Why should conservative businesses have to pay high levies as a resul? So the proposal is to introduce levies that match the risk profile of the subscribers.

The consultation document is available from here:

It’s a typical lightweight document from the FCA to give us something to read over Xmas – only 185 pages. We seem to be snowed under with consultations at present – any ShareSoc Members who would care to assist in dealing with them should contact me. Or you can of course put your own individual responses in using their on-line response form.

Roger Lawson

One comment
  1. Robert Morfee says:

    I found this an interesting document. The core problem is identified, that is to say that compulsory PI insurance does not work adequately in the financial services industry. In a properly functioning market delinquency is punished by increased premiums or the inability to get insurance at all. In the financial services industry PI insurance often fails to protect the consumer because it is available on terms which do not protect, leaving decent providers to pick up some of the bill, and the consumer to suffer losses the FSCS does not cover. The guilty walk away scot free. Reform is badly overdue to ensure that breach of the very explicit law in this area results in pain for the delinquent professional and redress for the unfortunate client. Whether this consultation will result in the necessary reforms remains to be seen. Robert Morfee

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