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FSCS shake-up likely to hike levy costs

The FSA wants to give the Financial Services Compensation Scheme the power to pay full compensation earlier and without investigating whether a claim is valid as part of a shake-up of the rules that govern the FSCS.

The regulator has today published a consultation paper on changes to the compensation sourcebook. This is separate to the planned consultation to review the FSCS funding model which is expected before the end of June.

The FSA has set out planned rule changes in a bid to enable the FSCS to handle claims quicker and more efficiently.

It proposes to allow the FSCS to pay full compensation earlier in cases where claimants are having to wait years before receiving full compensation.

Under the proposals where the FSCS has difficulty in establishing the underlying value of the investment, the FSCS must first decide whether it would be appropriate to pay a lesser sum in final settlement or make a payment on account. For payments on account the FSCS seeks an assignment of investors’ rights to pursue third parties to recoup compensation paid.

If this is not appropriate the FSCS would then be able to pay full compensation and be assigned investors’ rights.

The FSA also wants to allow directors and managers of the firm in default to be eligible for compensation. Currently when assessing claims the FSCS has to screen individual claims for claims from directors. The FSA argues that by making directors eligible to claim, the claims process will be speeded up.

Directors and managers would be subject to court action regarding any liability they may have for the firm’s failure.

The regulator is also calling for the FSCS to pay out in cases where the cost to the FSCS of assessing the claim exceeds the compensation due.

The FSA says: “We believe the proportionate approach is to give the FSCS the ability to pay compensation without investigating the eligibility of the claim and/or the validity and/or the amount of the claim if the costs of investigation are disproportionate to the benefits. The FSCS would also need to be satisfied that this was reasonably in the interests of firms.”

The FSA says this rule should apply to defaults occurring before and after the rule change takes effect.

The regulator says the proposals will not result in incremental costs for the FSA, with minimum cost increases for the FSCS.

However it says the extension of eligibility criteria to directors will increase compensation costs for firms.

It says: “Given this proposal will increase the number of claimants eligible for compensation if a firm fails, it will increase compensation costs. In effect this increase in compensation costs is a transfer from levy payers to the customers of the failed firm. Over time, the firms that pay the levies may pass them on to their customers, for example via higher charges.”

Compensation costs may also be pushed up by giving the FSCS the option to pay compensation without investigating the claim fully, if the FSCS pays claims that are not eligible or higher compensation than if it had fully assessed the claim.

But the FSA says: “We expect the probability of such an event occurring is very low, as the FSCS will have to investigate to a reasonable level that the costs of investigating the claim are disproportionate to the benefits and also that this is reasonably in the interests of firms, rather than checking cases individually.”


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Absolutely diabolical.

    Anyone with an ounce of common sense would never propose such changes. Whose money is this ?
    It’s ours! We have a right to know that claims are being properly investigated, not just waived through


    Get your letters off to the FSA objecting to this and also copy your MP and the Chancellor and David Cameron and let them know what is being done by the unelected, unaccountable lamentably inadequate and failed regulator.


  2. Hector the Protector strikes again. This is getting beyond any kind of belief. Why are they bothering with a consultation paper? They are going to run with this regardless. Having had a cursory look at CP12/7 who are they going to consult on the
    matter anyway?

  3. This industry is littered with unconscionable scumbags whose whole purpose of existence seems to be based around self-serving grubbiness allied to the removal of the rights and incomes of honest advisers.

    Don King said “Only in Amercia”. I wish this lot were.

  4. And there we have it !!! The last sembvlance of IFA firms being treated fairly gone. We already can’t run directors loan accounts, for tax planning purposes (cap adequacy rules render this pointless), and now directors of limited liability companies and having their limited liability stripped away. It begs the question, what is the point is being a limited liability company if the FSA can just cancel all prior company law and strip away the protection afforded to directors through being limited liability firms. So, all of my assets now have to go into my wife’s name immediately. What a farce…..

  5. On the face of it this does seem rather silly… a bit of guilty by default because we cannot be bothered to check the detail… I wonder what would happen if advisers arranged products like this…that said and the obvious groans that will follow…perhaps the FSA and FSCS/FOS have some data to show us all that helps support their case… which presumably would allay our fears… otherwise are we to assume that the same level of diligence has been applied “its on a CD” that RBS did with ABN AMRO? (surely not). So before we all get rather hysterical, perhaps some proper evidence could be presented…after all, I understood this is meant to be a partnership between advisers and regulators.

  6. I think I quite like the idea of directors being held responsible when a company fails. Too many companies have milked the public and left me to pay the bill.

  7. Well the final nails are being driven hard into the coffin.

    Why are we being denied the right run our own business, why are being denied the right to work, RDR and these arbitrary taxes and rules are totally unworkable.

    Constuctive dismissal

    Do we just work to pay the FSA & FSCS and live of the scraps they decide to throw us ?

    I for one choose revolt and anarchy

  8. On the basis that these changes cannot be retrospective I respectfully suggest that all of us get out now before a wave of spurious complaints drowns the industry. The lunatics are running the asylum and no one in government has the clout to stop them.

  9. Ladies & Gents as per Ned Taylor @ 12.09, I have just emailed my MP via It is so easy fill in you postcode and it tells you who your MP is. You can click on a link that takes you to an email page. Explain this latest ridiculous campaign of the FSA in brief and copy the link at the top of the page so they can read the report. It took me no more than 10 minutes to do. PLEASE PLEASE do this so we can bring some kind of sense to regulation of our profession. Tell everyone you know in our business – inform national papers write to everyone you can think of to bring this to the fore.

  10. Time for a very sharp exit rather than the end of the year as planned because an unlimited liability for someone else failing/fraud/scam/ miss-management etc etc is not part of my business plan

  11. @ Martyn Young

    Thanks for the link just done it

    Hope we all write

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