The Financial Conduct Authority (FCA) expects the Financial Services Compensation Scheme (FSCS) levy to stabilise due to actions it is taking in its three-year strategy plan.
However compensation levels are still expected to rise in the short term as the changes take effect, and the regulator added that it will hold itself accountable against published outcomes and performance metrics.
In its three-year strategy the FCA said it was prioritising resources to prevent serious harm, set higher standards and promote competition.
A key focus of its strategy is shutting down problem firms, which do not meet basic regulatory standards with 80 employees being recruited to work on the initiative, which it hopes will protect consumers from potential fraud, poor treatment and create a better market.
In developing its strategy, the FCA calculates that for every pound spent on its operations, consumers and small businesses benefit by at least £11.
FSCS levy
Within its plan the FCA acknowledged that the FSCS levy, which has ballooned over the last decade from £277m in 2011/12 to an expected £717m for 2021/22, reflected “too large” a bill of unpaid redress liabilities from failed firms.
In order to make the redress framework fairer, the FCA said it wants to see more consumers get redress from firms that owe them money.
It says it will achieve this through improving firm conduct through measures set out in its Consumer Investment strategy, considering capital requirement rules and intervening early to prevent systemic harm.
The regulator added it will identify potential problems earlier and carry out redress exercises with firms, where appropriate, so they quickly remedy harm.
By way of example, it says this could include intervening where consumers are complaining and it is more efficient and effective for the firm to resolve these without being referred to the Ombudsman.
The FCA added that as it wants more consumers who have suffered harm to have access to fair redress before firms fail, it is focused on improving firms’ financial resilience so they can cover a larger proportion of their redress liabilities.
Looking ahead the regulator committed to measuring the success of its progress over time, reducing the proportion of redress liabilities that insolvent firms leave in the system and stabilising the FSCS levy over a number of years.
It conceded that while in the short term FSCS redress payments may increase as its interventions take effect, its expects over the long-term, as firms’ conduct improves, that it will see fewer redress claims, including to the FSCS, as it would expect there to be less harm to consumers.