The Financial Conduct Authority is seeking views on possible improvements to how the Financial Services Compensation Scheme is funded as part of a review of its compensation framework.
This morning the FCA launched its consultation about the purpose, scope and funding of the FSCS to ensure it continues to meet the needs of consumers and firms.
The consultation covers what regulated activities should be protected under the FSCS, who should be eligible to claim compensation from the FSCS, appropriate levels of compensation for individual claimants and whether improvements can be made to how the FSCS is funded to ensure that costs are appropriately distributed and the impact on firms is proportionate.
The overall FSCS levy has increased over the last decade, from £277m in 2011/12 to an expected £717 million for 2021/22.
The FCA said it is committed to stabilising and reducing the size of the compensation levy over time. It added it is taking assertive action to address the root causes of the increase in compensation liabilities by improving the conduct of firms to prevent harm from happening in the first place and is also improving the financial resilience of firms so they are better able to meet their own redress liabilities and put things right for consumers.
Commenting on the consultation, Sheldon Mills, the FCA’s executive director for consumers and competition, (pictured) said: ‘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.
“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 until 4 March 2022.