One of the biggest changes would see an increase in the FSCS compensation claims limit for ‘investment provision, investment intermediation, home finance and debt management’ from £50,000 to £85,000.
While the FSCS covers losses on cash deposits up to £85,000 it only covers at present losses on investments of up to £50,000 per person, per firm (for claims against firms declared in default from 1 January 2010). It covers 100% of the first £50,000 loss at present.
The FCA’s 208-page CP17-36 ‘Reviewing the funding of the Financial Services Compensation Scheme (FSCS): feedback from CP16/42, final rules, and new proposals for consultation takes the ‘next step’ in reviewing the funding of the FSCS, the FCA said today.
The FCA says it is considering sweeping changes following feedback to proposals its published last December in CP16-42 on reforming the FSCS with the overall aim of ‘preventing consumer harm’ and reducing the overall size of the FSCS bill.
The FCA received hundreds of comments to CP16-42 and says it is now asking for comments on this latest Consultation Paper (CP) by 30 January 2018 before making final changes.
Among the changes proposed are:
• merging the Life and Pensions and Investment Intermediation funding classes
• requiring product providers to contribute around 25% of the compensation costs which fall to the intermediation classes
• moving pure protection intermediation from the Life and Pensions funding class to the General Insurance Distribution class
CP17-36 also contains the final rules for changes to FSCS funding which were consulted on in December 2016. This includes:
• introducing FSCS coverage for debt management firms
• extending coverage to fund management
• applying FSCS protection to advice and intermediation of structured deposits
• requiring the Society of Lloyds to contribute to the retail pool
• introducing additional reporting requirements which will potentially enable the FCA to introduce risk-based levies in the future
• amending payment arrangements
The FCA says it is consulting on increasing the FSCS compensation limit for investment provision, investment intermediation, home finance intermediation, and debt management claims to £85,000 to reflect changes to the options available to consumers when they retire.
It is also consulting on changing the limit for claims in relation to the intermediation of long-term care insurance in line with the limit for other kinds of pure protection claim, at 100% of the claim, instead of £50,000.
The FCA said: “We are also seeking views on other options for reducing harm to consumers. These options are intended to give firms incentives not to carry out activities which have led to FSCS claims in recent years, and also to reduce the value of claims the FSCS has to meet.
“We are considering requiring certain Personal Investment Firms (PIFs) – particularly those with exclusions on their Professional Indemnity Insurance (PII) policy - to pay money into a trust account or purchase a bond that would ensure more claims are paid for by firms or their insurers.”
CP 17-36 can be found here - https://www.fca.org.uk/publications/consultation-papers/cp17-36-reviewing-funding-financial-services-compensation-scheme.