FCA to review FSCS rules and payouts

FCA to review FSCS rules and payouts

The Financial Conduct Authority has announced that it will undertake a review of the scope and coverage of the Financial Services Compensation Scheme.

In its business plan published today (July 15), the FCA said it is reviewing the compensation policy framework to ensure it is appropriate, proportionate and takes into account changes in the market, as well as its regulatory approach.

Details of the review are to be published during the next 12 months but the regulator said today that in the long-term, it wants firms that fail to do so in an orderly manner by changing capital adequacy rules.

The FCA wants firms to have appropriate capital, liquidity and reserves to cover outstanding redress liabilities and to hold financial resources “proportionate to the potential harm caused” if they do fail. 

Over time, the regulator said this will reduce the level of FSCS payouts. 

“We want to be better aware of those firms most likely to fail so that we can reduce the harm from their failure,” it said.

“We want the scale of compensation liabilities to stabilise in the medium-term and reduce longer-term as firms hold more capital and liquidity, and fewer cause misconduct that requires them to pay redress on a large scale.”

The FCA is also streamlining its enforcement and supervisory procedures to find issues and harm faster.

It said: “We will evaluate our efforts to reduce disorderly failure by monitoring the value and volume of FSCS claims, with the aim of reducing these over a multi-year period to bring down the FSCS levy on the industry.”

This comes as the FCA has been investigating ways to change the FSCS structure.

Last year, former FCA chief executive Christopher Woolard said a product levy was not "back on the table" as part of its plans to manage rising costs at the industry-funded lifeboat body. 

The levy has predominantly driven the rising regulatory bills which have landed on adviser doorsteps in recent months, prompting some to call for the regulator to revisit the previously much-debated idea of a product levy. 

Consumer investments strategy

Elsewhere in the business plan, the FCA said it will be publishing its three-year consumer investments strategy which will include how it tackles firms and individuals who cause consumer harm. 

The FCA said it is improving how it detects, triages, disrupts and takes enforcement action to help reduce fraud and harm. 

“We are increasing public awareness and confidence through our ScamSmart campaign and our consumer alerts about unauthorised firms and individuals. 

“We will continue our work to improve pension advice, including defined benefit pension transfer advice. 

“We will continue proactive work with our partners. We will create a ‘consumer investment coordination group’ with the FSCS, the Financial Ombudsman Service and the Money and Pension Service (MaPS). We will also gather information on sharp practices so we can better target interventions.”

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