FSCS Review

Of Relevance to;
All firms, particularly those with clients that qualify as ‘eligible claimants’

The FCA has published consultation paper CP16/42 “Reviewing the funding of the Financial Services Compensation Scheme (“FSCS”)”.

It may be recalled that the joint HM Treasury and FCA Financial Advice Market Review (“FAMR”) suggested some reforms for the FCA to consider at its next FSCS funding review, including the concept of a risk-based levy and how the volatility of levies could be reduced – see Regulatory Roundup 75 (“FSCS Levy 2016/17”).

Although classed as a ‘Consultation Paper’, in reality part of it can also be regarded as a ‘Discussion Paper’. With regard to the latter, the areas that the FCA is inviting views on includes, but is not limited to:

  • Updating FSCS compensation limits and activities – including possibly extending compensation to financial promotions and loan-based crowdfunding;
  • Product providers contributing to FSCS funding relating to claims caused by intermediary defaults;
  • Introducing the concept of a risk premium so that, for example, those distributing non-readily realisable investments would pay a higher levy;
  • Merging some intermediation classes e.g. grouping together investment, life and pensions, home finance and general insurance.

Aside from inviting general comments on the above, CP16/42 is also consulting on specific proposals:

  • Introducing FSCS protection for debt management activities and structured deposits;
  • Amending the ‘protected investment business’ rules so that the FSCS can directly compensate participants in all collective investment schemes;
  • Requiring Lloyd’s of London to contribute appropriately where costs in a particular intermediary class breached the affordability thresholds;
  • Changing payment arrangements so that those firms already paying FCA fees on account will also be required to make a payment on account in respect of their FSCS levy.

Comments are invited by 31 March 2017.