Who is going to pay? FCA launches consultation on the funding of the FSCS

The FCA's consultation follows on from FAMR and focuses on how the FSCS should be funded going forward.

The responses to FAMR highlighted, amongst other topics, industry concerns with the FSCS levy.  FSCS levies have risen sharply in recent years leading to concern about the costs involved and the unpredictability of the same.  The costs of funding the FSCS were identified in FAMR as a potential barrier to firms being able to provide affordable financial advice.  In addition, FAMR highlighted issues over fairness of the levy with the use of classes to determine sums owed rather than a reflection of the type of activities undertaken by firms.  FAMR concluded that many felt the wider advice industry was paying the compensation costs incurred by a minority of firms.

As a result of the views expressed in FAMR, the FCA has decided to carry out a fundamental review of how the FSCS is funded. The FCA says it is looking to review the funding structure of the FSCS to ensure that it acts as a back stop, not a first line of defence and that there is sufficient funding to compensate claimants who are entitled to receive compensation.

The FCA is looking at a range of options to try and establish a change in how the FSCS is paid for and the level of protection it provides to consumers.  It is asking for comments on the following proposals:

• Whether PII could cover more claims.
• If there should be product provider contributions towards the costs of claims.
• Including Lloyd's of London in the retail funding pool.
• Changing the funding classes.
• The introduction of risk-based levies.

In addition to gathering views on how the FSCS should be funded, the FCA is asking for comments on extending the FSCS's remit.  The FCA is considering whether compensation limits should be increased in respect of claims relating to investment provision and the intermediation of life, pension and investment products.  It also seeks views on whether cover should now be afforded for loan-based crowdfunding and financial promotions.