FSA outlines new Financial Services Compensation Scheme

by Gill Montia

Story link: FSA outlines new Financial Services Compensation Scheme

The Financial Services Authority (FSA) has published details of the new funding arrangements for the Financial Services Compensation Scheme.

The scheme, which will operate from April 1st 2008, will ‘considerably’ increase the funding available to pay valid claims to consumers.

It also aims to increase consumer protection and thereby help maintain market confidence.

The funding available to pay compensation is being increased to a maximum of £4.03 billion per year.

Costs will continue to be met by a levy on regulated firms and administration will be simplified.

The new model introduces a ‘widening circle’ of funding, which means that compensation costs emerging from a particular sub-class of business is borne by that sub-class alone, up to its annual threshold.

Once the threshold is exceeded costs are shared more widely.

The scheme comprises five broad classes: life and pensions; investments; general insurance; deposits; and home finance.

Each class (except deposits) will have two sub-classes and initial costs will be met by the sub-class relevant to a claim, they will then pass to the relevant broad class, and finally to a general retail pool.

According to Graeme Ashley-Fenn, FSA director: “An effective system for compensating consumers for losses incurred when a financial services company fails is a vital part of the regulatory system”.