FSCS boss defends costs of running scheme

FSCS boss defends costs of running scheme

The chief executive of the Financial Services Compensation Scheme has defended his organisations costs after being challenged on theissue.

Mark Neale was speaking after the FSCS published its latest plan and budget, which showed the organisation plans to raise levies of £336m to fund its compensation and management costs.

He said he was asked by the Financial Conduct Authority's small business panel last month to justify the ratio of management to compensation costs.

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Mr Neale said: "This perfectly reasonable challenge does not take into account the full range of FSCS’s responsibilities. In fact the direct costs of claims handling account for only just under £24m of our budget - or about one third.

"We also incur significant costs – just under £10m – on our financial and operational resilience so that we are ready to handle a major failure of a bank or another crisis. That is when FSCS’s ability to protect consumers and financial stability will really be put to the test."

Among these costs Mr Neale cited the contingent borrowing facility with a consortium of banks to fund a seven day pay-out, and the costs of making recoveries from the estates of failed businesses or from third parties responsible for investors’ losses.

Mr Neale also said the FSCS faced a challenge in the "sheer unpredictability" of its workload.

He said: "Equally, we see significant changes in the mix and volume of claims over more extended periods. So, over the last two or three years, the most striking feature of our workload has been the steady growth of pension claims.

"This growth in pension claims underlines the importance of raising awareness of the scope of FSCS protection of insurance, investments and investment advice as consumers make increasingly important choices about financing their retirements."

Mr Neale also said the FSCS was planning to outsource the handling of most claims to a single partner from July, rather than a number of different companies.

He said: "Because of the unpredictability and volatility of our workload, FSCS’s business model is to out-source the handling of most claims to partners who are better placed to handle the volume risk. 

"It would make no sense for FSCS to hire and fire people and take on and let go accommodation as claims rise and fall.

"We are confident [outsourcing to a single partner] will enable us to achieve further gains in customer service and efficiency in the years to come because our partner will have much greater incentive to invest in claims handling process and will work with us to build a strong customer service ethos."