FCA opens review of compensation scheme
The Financial Conduct Authority (FCA) has published a discussion paper calling for input on a review of the compensation framework, following a dramatic rise in the amount of money being paid out via the Financial Services Compensation Scheme (FSCS).
The compensation framework review aims to provide “appropriate protection for consumers, funded in a fair and sustainable way”.
The FCA is seeking views on fundamental questions about the purpose, scope and funding of its compensation framework to ensure it continues to meet the needs of consumers and firms.
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The FSCS’ operating costs are funded by levies paid by financial services firms. The total cost of this levy rose from £277m in 2011/12, to an expected £711m for 2021/22. This is the result of a series of historic misconduct investigations on firms in the investment space.
The FCA noted that the pipeline of historic claims is expected to result in further FSCS payouts over the coming years. The regulator said it wants to stabilise and reduce the size of the compensation levy over time.
“We want consumers to have trust in a thriving UK financial services sector, and businesses to be confident that they can bring new and innovative products to market,” sad Sheldon Mills, the FCA’s executive director for consumers and competition.
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“To achieve this, it is vital that consumers have an appropriate level of protection if things go wrong – and that we find a fair and sustainable way of funding the cost of this protection. Now is the time to ask how we can ensure our compensation framework is fit for the future.
“We are already taking action against the drivers of compensation claims. These include our measures to reduce the impact when firms fail and to tackle misconduct in the investment market.”
The FCA is inviting responses to the discussion paper before 4 March 2022.
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