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Loretta Minghella

Her family’s ice cream business boasts that “One lick and it’s love” and the chief executive of the Financial Services Compensation Scheme will certainly be popular with advisers if she manages to lick the levy system into shape. Interview by James Salmon

Heading the Financial Services Compensation Scheme is all very well but Loretta Minghella has other strings to her bow which are more likely to break the ice at dinner parties. Not only is she a lifelong official taster for Minghella (“One lick and it’s love”) Ice Cream, the family’s Isle of Wight-based business, but she also has a famous brother, Oscar-winning film director Anthony Minghella (The English Patient, Cold Mountain, etc).

Born to “mad Italian stock”, Minghella became a criminal defence lawyer after leaving university, with visions of being the next Rumpole of the Bailey. But after joining the Department of Trade and Industry in 1989, she became fascinated by regulation.

Minghella joined the FSA’s forerunner the Securities and Investments Board (SIB) in 1990 to work on the retail side and in enforcement. However, she soon realised it had wide-ranging responsibility but no power and began to champion the creation of a statutory regulator with teeth. Her wish was granted with the formation of the FSA. She eventually became head of enforcement law policy at the FSA before joining the FSCS a year ago.

Her experience makes her more qualified than most to comment on the FSA’s recent review of its enforcement procedures following the Legal & General debacle. Minghella points out that she has a vested interest in the review as the more effective the regulator’s enforcement division, the lighter the FSCS’s workload.

“I think the enforcement division did a lot of good things in the first few years of operation but ultimately people were not convinced it was operating in a fair way. I think that L&G focused minds on what needed to be improved.”

Minghella’s time at the FSCS has seen continual reform, caused largely by the relentless flow of endowment complaints. Resulting levy increases have put the FSCS under intense scrutiny. With its recent budget predicting a threefold increase in endowment complaints in 2006-07, this pressure is not likely to go away. Forecasts of a 10m rise in the levy for advisers from 37.4m to 47.5m, following a 50 per cent increase, have increased demand to change the way that the FSCS is funded.

If Minghella has an opinion what should be done, she refuses to pre-empt the FSA’s consultation on the issue but she concedes that the point of debate has shifted from whether the funding structure should be changed to how it should be changed.

One option that she reveals is being discussed is creating an emergency fund which could be dipped into to pay claims, meaning that firms are not suddenly hit with hefty levies. “We need to manage volatility better and smooth out payments so they do not suddenly hit firms’ balance sheets.”

Minghella empathises with advisers angered by high levies but does not accept the argument that advisers have been scuppered by flawed Lautro projections and products with in-built shortfalls foisted on them by providers. “What we see is firms that have misled consumers by telling them that taking out endowments will give them a nice little nest egg.”

She says the increase in claims does not come from a small number of firms in default with massive liabilities but a rapidly growing number of small firms, particularly those whose proprietors are heading for retirement, with a few complaints against them. Many complaints stem from firms that folded long ago but have long tail liabilities.

The sheer spread of liability is placing a massive burden on the scheme’s resources and forcing it to streamline its operations. Rather than increase staff numbers exponentially to cope with the workload, Minghella says much of the work is being outsourced which keeps down costs and means that when claims start to drop off, the FSCS will not have to lay off staff.

Other measures to cope with the growing workload include redeploying staff who previously concentrated on precipice bonds to work on endowments.

Minghella is keen to point out that it is not all doom and gloom at the FSCS. The pension review is finally coming to an end and the scheme has managed to whittle away precipice bond claims to 500 complaints.

The scheme is set to refund a surplus of 42m to firms in the general insurance contribution group before the end of the 2005-06, partly a result of lower than anticipated compensation payments in the sector.

The splits’ issue, however, is still in limbo. The FSCS is unable to impose a levy on splits in 2006-07 as it is still assessing whether Exeter Asset Management is in a position to meet its liabilities.

Minghella believes that a significant number of claims will come through this year. So when the endowment crisis does eventually tail off, she will have plenty to keep her busy.

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