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FSCS chief: How we’ve learned from past mistakes

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This week’s sees the publication of our annual Plan and Budget for 2017/18. It supports the consultation the FCA and Prudential Regulation Authority are undertaking on our management budget.

I often think this document well illustrates the enduring tension between strategy and tactics.

Any business plan should be informed by a clear strategic sense of direction.  It describes how the organisation will take forward its strategy in the year ahead.

But any year is also dominated by the contingent – and FSCS’ job is, after all, highly contingent: to protect consumers in the face of unpredictable firm failures.

So there’s a strategic story, a tactical story and a story about how strategic and tactics are resolved.

The strategic story centres on the strides FSCS has made since the financial crisis to ensure that it has the people, processes and IT to respond to major failures or to a future crisis.

The investment we made in 2009 and 2010 in a fast pay-out capability for deposits means that we’re able to restore people’s savings in a failed bank, building society or credit union in seven days.

And our subsequent investment in a new claims handling platform for non-deposit claims, is now, after a difficult start, delivering the benefits we foresaw.

Claims are handled electronically. They move rapidly and safely between FSCS and our out-source partners who handle the great majority of claims and share the platform.  We can draw on the capacity of our partners to meet spikes in demand, as we’re doing this year in response to rising claims volumes.

Our customers can now make and track claims online. As a result, we are able to provide a better service to customers. Customer satisfaction is now at 77 per cent and rising. And it also provides a better value service for our levy payers with like-for-like claims processing costs expected to fall by around 14 per cent by March 2017.

We intend to build on these benefits in 2017/18.

“We can draw on the capacity of our partners to meet spikes in demand, as we’re doing this year in response to rising claims volumes.”

Tackling tough times ahead

We shall improve customer service further by opening our online service to representatives.  And we are able to bear down further on our costs, including our change budget which falls to roughly half what it was at its peak.

Excluding the variable costs of handling non-deposit claims, our budget for 2017/18 falls by £2.7m.

Tactically, however, we expect to have to deal with significantly higher volumes of often complex claims than we budgeted for this year. That’s most notably true of Sipp-related claims driven by bad advice to hold risky illiquid assets within a Sipp wrapper. We forecast compensation costs in 2017/18 could rise as high as £163m for these claims.

This is above the annual limit and triggers a contribution from other industry sectors. And we shall also be continuing to deal with the aftermath of the failures of the Enterprise and Gable insurance companies.

These higher claims volumes have already made themselves felt in the supplementary levies we have had to announce for 2016/17 to meet higher compensation costs. More claims also, of course, add to our management costs.  We expect our outsourced claims handling costs in 2017/18 to be £4.5m up on this year’s budget.

Not all contingencies work against our levy payers, however.  Because we have seen fewer unexpected failures of investment advisers in 2016/17, we have been able to make a refund of £50m to these firms (£5m set against this year’s cross subsidy).

So FSCS is adhering to our five year strategy – Vision for a Confident Future – of building the capacity and resilience the FSCS needs to deal with the unexpected and to support consumer confidence.

And that capacity and resilience will be tested in the year ahead by short-term demands arising, principally, from Sipp-related claims and recent insurance failures.

What we can say is that FSCS can deal with the peaks and troughs more efficiently than in the past, while also providing a faster and more convenient service to our customers.

Mark Neale is FSCS chief executive

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. FSCS needs to really beef up its investigative work on firms looking to be put into ‘default’. Over the years its performance has been woeful leading to ‘phoenixing’ and other forms of liability evasion. I know of a character who had two firms placed into default even though there were significant assets on the balance sheet. Needless to say he is very well off but has dumped many thousands of liabilities on the FSCS. Speeding up payments does not give me any great satisfaction as a levy payer whilst these antics continue.

    • Phoenixing is not something over which the FSCS has any control. Should a firm default on its liabilities, all the FSCS has to do is decide whether or not to take them on. Should that firm or its principals decide subsequently to apply for reauthorisation under the auspices of a new corporate entity, that’s an issue for the FUCA.

  2. The purpose of the FSCS may very well be to protect consumers in the face of unpredictable firm failures. But what about the avalanche of largely predictable failures which, had the FCA been doing its job remotely competently, it should have been able to head off at the pass or at least minimise?

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