Apfa is calling on the FSA to hold the Financial Services Compensation Scheme to account over its escalating running costs and argues the FSCS should be more transparent about the extent of likely Keydata recoveries.
The FSA published a consultation paper last month which proposed a new maximum limit for FSCS management expenses of £94.4m for 2013/14. Management expenses are separate from compensation costs and are not included in the sub-class cap calculations.
Stripping out expenses relating to legacy banking failures, the FSA has proposed an FSCS management expenses budget of £73.4m, compared to £66.4m forecast expenses for 2012/13.
In its consultation response, published today, Apfa questions why the FSCS is budgeting for an increase in management expenses when it is forecasting a fall in the number of completed claims. The FSCS plan and budget earlier this month forecast the number of completed claims will fall from 44,546 in 2012/13 to 15,982 in 2013/14.
Apfa says: “We believe it is imperative the FSA holds FSCS to account. The costs of regulation increase each year, and we believe more needs to be done to challenge the regulatory bodies, such as the FSCS, about the level of their expenditure. We therefore call upon the FSA to be rigorous in its analysis of the FSCS budget and to halt this increase in costs.”
The trade body says the FSCS should target 5 per cent cost savings a year, and wants the National Audit Office to carry out a value for money audit of the FSCS “as a matter of urgency”.
Last month’s consultation paper also revealed out of the FSCS’ management expenses, £7.2m has been budgeted to cover the legal costs of pursuing recoveries, mainly related to Keydata.
The FSCS is facing total legal and recovery costs of £22.8m, with recovery costs estimated at £7.7m for 2012/13 and £7.9m in 2011/12. The scheme expects to recover a further £75m in Keydata recoveries, on top of £28m already recovered from Norwich & Peterborough Building Society.
But Apfa says it is not clear how much of this £75m relates to the administration of Keydata assets and how much relates to its legal action against Keydata advisers. It says it has asked the FSCS several times for details of any cost-benefit analysis that was carried out before the FSCS instructed law firm Herbert Smith to begin legal proceedings against Keydata advisers in October 2011.
Apfa says: “There is no sense of how much they are prepared to spend or how they will decide whether it is uneconomic to continue. We therefore believe it is essential that if the FSCS is spending the industry’s money on these speculative legal actions, it should be more transparent about the amount it expects to spend and the amount it might realistically recover.
“The FSCS should not be allowed to operate with a blank cheque book, employing expensive City lawyers, without being the subject of scrutiny and challenge by FSA and industry stakeholders.”