Kim North: FSCS needs to work harder to reduce costs

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As we enter the quieter summer months, many leave their desks to head to a family holiday while I keep my eyes open for news stories that might want to slip through without attracting too much attention.

I could not believe last week’s news that the Financial Services Compensation Scheme may throw away a scheme to deliver payments electronically. Its intention, initiated in 2011, was to pay out to depositors in failed banks and building societies within seven days by transfer to another bank or building society. The spending on the project to date is a cool £1m.

Why is it so hard for the FSCS to ask the consumer for their sort code and account number and simply transfer the cash? And why spend £1m which mainly comes from funding by the industry to just investigate the feasibility off online payments which may come to nothing?

According to the Payments Council, in 2013, over 30 million UK consumers banked online. People expect to be paid electronically these days to save the trouble of popping into a bank or finding a stamp to pay in a cheque.  

In the 2013/14 annual report the FSCS claims to “strive to minimise our costs”. They have 200 staff employed, £57.7m was spent on management expenses and £243m was paid out as compensation (£25m to Arch cru investors) in 2013/14, reduced from £326m in 2012/13.

There is £16.6bn outstanding on loans, with £446m in interest paid in 2013/14 which accrued from the 2008/09 banking failure.

The FSCS needs to strive even harder to minimise costs to help repay these loans. Electronic payments to a bank of a successful claimant would be a good start. There also needs to be final settlement through the courts of the Keydata case and compensation payments agreed. 

PricewaterhouseCoopers was appointed joint administrator of Keydata on 8 June 2009 so it has been with the lawyers over five years; clients are still out of pocket and the lawyer fees are ratcheting up.

As we look forward, the FSCS is “increasingly concerned” by the rising number of claims received that are related to Sipp investors. 

In my mind, a Sipp is a no-brainer as a good pension wrapper choice for most but it is some of the investments that are problematic. A list of allowable investments in Sipps, such as the old Joint Office Memorandum 101 – which simply listed the permitted Sipp investments on a single page, later replaced by the Registered Pensions Scheme Manual rules, which are complex and runs to dozens and dozens of pages, should be reintroduced.   

In the run-up to April 2015, people needing to decide what amounts of pension fund money they take either as tax-free cash, taxable cash, drawdown or annuity may become a huge issue for the FSCS.

This could be avoided if the rules let those “at retirement” to reverse their decision if advice is provided by, say, an adviser working off a very restricted panel or by someone that will not give advice on the client’s tax position. If not, as the song goes, there may be trouble ahead.       

Kim North (kim@techandtech.co.uk) is managing director at Technology and Technical

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