Financial Services Compensation Scheme  

FSCS chairman open to structure review

“We’re very aware of the challenges and emotion around this subject currently and we’re aware that without the industry funding we wouldn’t be able to pay compensation.”

The FCA consulted on the way the FSCS is funded in 2016-17. At the time, it looked into the workings of a risk-based levy as well as the impact of professional indemnity insurance on the market.

Many advisers have rallied for a risk-based levy — where firms dealing in higher-risk products would pay more towards the cost of the FSCS — throughout the years, arguing this would counterbalance the feeling that the ‘good guys pay for the bad guys’.

Although it asked firms to report new data to help the regulator decide on whether to go ahead with the proposal, the City-watchdog ultimately decided against a risk-based levy structure.

Instead, it proposed providers should pay 25 per cent of the FSCS costs in a move to reduce the burden on advisers. Despite this, advisers’ levy costs have increased since the review.

Ms Rainbird said: “The area of focus needs to be what we can do collectively across the industry to reduce bad outcomes because that has the benefit for consumers and levy payers.

“The levy hike is down to the increase in the number of claims and complexity of those claims. The FCA is working hard and we are working with other players to work hard for the industry.”

The FSCS’s 'prevent' pillar — which has been in place since Mr Bailey took over as chairman almost two years ago — is a bid to minimise bad outcomes in the industry.

As part of the prevent programme, the scheme has worked with the FCA and other industry bodies to curb the level of phoenixing in the industry.

Since its inception the group has acted on 19 cases of phoenixing — so has stopped 19 previously defunct firms rejoining the industry — and has passed on data on 130 firms it suspects of phoenixing.

Ms Rainbird said: “I don't have a magic wand to fix the past. We need to make sure we can pay compensation fairly, because we need to get people back on track and restore their trust and confidence in the financial services industry.

“But we can work together to help, to see what we can do to make sure we collectively do something for the benefit of the[industry in the] future.”

What do you think about the issues raised by this story? Email us on to let us know.