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 has recently undertaken a public consultation on changes to the scheme. ShareSoc has submitted a response giving our views on behalf of our Members.
At present there are limits to the protection FSCS provides which vary by financial product. In simple terms, it protects:
- Deposits up to £75,000 per person per firm;
- 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 where the claim cannot be met by the regulated firm or by insurance cover. That is obviously a very low limit for what many people have invested via a stockbroker, either in a pension (SIPP), ISAs or directly.
We have suggested that the compensation be increased up to a limit of £1 million. On current annuity rates, even that would barely provide a living income in retirement. As more people take charge of their own financial affairs, they are often reliant on others for investment advice and products/services in the financial area that are often complex and difficult to understand for non-professionals. The new pension freedoms are known to be causing the promotion of lots of dubious investment propositions.
But we support a change such that risky firms contribute more to the FSCS. The contributions made by financial services firms have been rising recently thus adding to the costs of companies such as stockbrokers which are obviously passed on to their clients. The FSCS levies have risen mainly because of a few large failures of firms operating in risky areas or who were simply imprudent in managing their activities.
ShareSoc’s response to the consultation can be read here http:/www.sharesoc.org/Funding-of-the-FSCS-Response-2017-03-29.pdf