On December 14, 2016, the FCA launched a consultation on the
future funding of the FSCS as well as changes to the FSCS rules.
The FSCS is the compensation scheme for customers of UK authorized
financial services firms. It covers the business conducted by firms
authorized by the FCA and the PRA and protects, subject to certain
limits, deposits, investment business, home finance, insurance
policies and insurance broking. The FSCS is funded by contributions
from firms across the financial services sector. The FCA's
consultation follows the Financial Advice Market Review, conducted
by HM Treasury and the FCA, which concluded that the scale and
impact of FSCS levies has increased sharply for certain firms
recently, particularly those required to contribute towards claims
for self-invested personal pensions. This causes concerns relating
to the unpredictability of levies and, in some sectors, a
relatively small number of firms being responsible for a large
proportion of compensation claims.
The FCA is carrying out a fundamental review of the FSCS level
and the protection that it provides to consumers. In particular,
the FCA is consulting on (i) whether more comprehensive
professional indemnity insurance could increase the proportion and
value of claims covered by insurance when firms fail; (ii)
introducing product provider contributions towards the cost of
claims against intermediary firms to reflect the wider
responsibilities of product providers in the process; (iii)
changing the FSCS funding classes for types of intermediation
activities, including alternative class structures; (iv) whether
risk-based levies could better reflect the risks of specific
practices, particularly for firms distributing higher risk
products; (v) updating compensation limits as a result of pension
freedoms; (vi) extending FSCS coverage for some aspects of fund
management and introducing it for debt management and structured
deposit intermediation; (vii) imposing reporting requirements so
that more risk-based levies can be introduced in the future; (viii)
requiring Lloyd's of London to contribute to the retail pool if
costs in an intermediary funding class breached affordability
thresholds; and (ix) requiring certain firms to pay a proportion of
the levy on account.
The consultation closes on March 31, 2017. The FCA will publish
some final rules later this year but will also consult further on
some of the issues raised in its consultation paper.
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