FSA to look into 'unfair' FSCS levy

On Monday, the British Insurance Brokers' Association said it received confirmation from the regulator that a review would be carried out, reassessing the system for compensating customers of failed financial institutions.

Trade associations such as the Building Societies Association and Biba have criticised the disproportionately high fees levied on members to compensate the victims of big banking failures.

Andrea Kinnear, spokesman for the FSA, said she could not confirm if a review was being launched, but the regulator was committed to launching a comprehensive review of the FSCS in 2009, with the intention to publish a consultation paper by 2010-2011.

She said: "The regulator will review the composition of classes and sub-classes in the scheme, including the thresholds for the classes and the levies for the different types of firms."

The FSCS confirmed in August that banks, building societies and credit unions would be asked to pay £406m as their initial contribution to the costs of bank defaults that occurred in 2008.

Rachel Le Brocq, press and public affairs manager for the BSA, said building societies paid too much and the levy should have a risk-based approach.

She said "We believe that building societies are paying a disproportionately high amount and it is something that we have been pushing for a long time. What we are keen that it should take a risk-based approach and we look forward to contributing to the debate."

When asked if there was a link between the chief executive of the FSCS Loretta Minghella's departure and the review, Suzette Brown, senior communications officer for the compensation scheme said: "The review is a few months old, it has not just been decided. It is not a new issue for us. Ms Minghella has only just announced her decision to depart and this has nothing to do with it."

Michael Wainwright, partner for international law firm Eversheds said it would be better to change insolvency law so that, upon the failure of a bank, depositors would be paid ahead of all other unsecured creditors.

He said: "As a result of the recent collapse in the global banking system and the emergency expansion of the scheme's coverage in response to that collapse, the scheme is now extremely expensive to run, at a time when it is important that banks and other financial institutions should rebuild their balance sheets."