View more on these topics

Balancing the redress

Compensation schemes such as the Financial Services Compensation Scheme are based on a recognised principle that the majority pay for the failures of the minority, thereby reducing the impact of a failure on individuals.

The existence of the FSCS helps to satisfy the FSA&#39s sta-tutory objectives of maintaining confidence in the sector and providing protection for consumers. Under the sch-eme, firms authorised to conduct business by the FSA pay for the cost of claims against other authorised firms which are unable to pay claims against them.

We at the FSCS can only consider claims if a firm or its principals are unable to pay claims. How claims end up at the scheme&#39s door is outside our jurisdiction. If a firm is in default, the scheme is triggered.

To qualify for compensation, claims against a firm in default must be eligible under the scheme&#39s rules. For inv-estment misselling claims, for example, the FSCS must be satisfied that the product was unsuitable for the investor at the time of sale and that the investor has suffered a loss.

Generally, the aim is to put the investor back in the position they would have been in had they not bought the product. Compensation is not awarded for poor investment performance as such and it is only if all these conditions are met that the FSCS can pay compensation. Many of the potential claims do not fall within our remit and are rejected.

Firms share the costs of compensation according to the types of business they are authorised to conduct and not the products they sell. One of the key features of the scheme is that firms should only pay for claims arising from the type of business they also conduct, for example, advisory brokers holding client money.

The FSCS is funded on a pay-as-you-go basis. Its management expenses are subject to public consultation and it makes levy announcements each spring based on its estimates of the amount of compensation it will be required to pay in that year.

The 2004/05 increases in levies were announced on March 25 and we publish information on our website.

Increases in investment sub-scheme compensation costs being experienced by firms are a direct result of the increase in non-pension rev-iew claims being considered by the scheme, for example, in respect of products such as mortgage endowments and precipice bonds.

The levy for these types of claims increased by 320 per cent from £7.9m in 2003/04 to £33.2m in 2004/05. The levy for pension review (A16) claims fell by 31 per cent.

The FSCS has warned that an additional £20m may be needed for 2004/05 because of the continued escalation of general investment claims.

The scheme aims to defer any further related levies until 2005/06. An announcement of the total levy required for 2005/06 is expected to be made in spring 2005.

Payment of levies is a req-uirement of authorisation by the FSA. For further information about the levy, see www. The FSCS was set up under the Financial Services and Markets Act 2000. It is bound by the terms of FSMA and the rules made for it by the FSA. Regulatory objectives under the FSMA include market con-fidence and the protection of consumers.

The FSCS publishes a regular newsletter for firms called Outlook which is sent to all authorised firms and published on its website. You can register to get a copy by email at Ron Devlin is interim chief executive of the Financial Services Compensation Scheme


Opra renews fight against cash scams

The Occupational Pensions Regulatory Authority has stepped up its campaign to warn consumers against pension liberation scams. Opra has updated its guides to members and trustees to highlight the dangers that pension liberation poses for consumers looking for a means to free up cash from their pension schemes quickly. Pension liberation or “trust busting” is […]

New Star appoints Dossett to manage property portfolio

New Star is appointing former Estates & General managing director Roger Dossett to manage the property portfolio of its property unit trust. New Star expects Dossett to take over the running of the property portfolio from Capital & Counties later this year. At the same time New Star UK growth fund manager Stephen Whittaker will […]

Follow the trail

I have read quite a bit about the proposal to stop trail commission. However, no one has ever thought to ask life companies what they do with their trial commission? On leaving a tied position, all of my renewal commission that I had built up stayed with Abbey Life. It was not paid to another […]

Out of context

• “It&#39s very exciting sitting beside a rock star, breathing the same air as him. Sometimes I even swap cups so I can drink from his.” – Very excited Lansons PR discusses rock star Richard Winder. •”He&#39s already so huge, I reckon he&#39ll be driving by the age of one.” – Birmingham Midshires PR Matt […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm