Even though some firms failures are to be expected, the current level remains too high and needs to be addressed, according to Martyn Beauchamp, interim chief executive officer of the Financial Services Compensation Scheme.
Speaking to FT Adviser, Beauchamp explained that the pensions and advice landscape will continue to evolve – much of which will have relevance to FSCS and the protection it provides to consumers.
The FCA’s recent consultation on capital requirements for personal investment firms is one example that seeks to reduce the amount of compensation FSCS needs to pay to consumers.
The regulator has proposed a “polluter pays” framework which will require personal investment firms to set aside capital so that they can cover compensation costs.
Any firm not holding enough capital will be subject to automatic asset retention rules to prevent them from disposing of their assets.
Beauchamp said: "This goal is something FSCS strongly supports, as poor investment advice is still driving large numbers of complex claims which are often costly for us to resolve.
“These costs are passed onto the wider industry through FSCS’s levy, which we know creates a burden on many firms.
“As laid out in the FCA’s feedback statement on the compensation framework review, we also expect further work on our funding classes and associated compensation limits soon.”
Beauchamp said it is an honour to lead the FSCS as it aims to put consumers back on track when they have nowhere else to turn.
“But as much as our service is crucial, we’d rather so many customers didn’t need to come to us for compensation in the first place,” he added.
“Although some failure is inevitable, the current levels are still simply too high, and continued focus on the root causes of consumer harm across the financial services sector remains a must.
“FSCS will continue to work with our regulatory and industry colleagues throughout 2024 to ensure our service remains relevant and appropriate for what lays ahead.”
Looking ahead
Beauchamp said depositor protection will remain a focus over the next year, with a compensation limit review due by 2025.
"As well as the amount of money protected, the PRA has also spoken about the importance of continuity and of people having access to their money as soon as possible in the event of failure,” he said.
“We’ve already been working on enhancing our payment options, to allow for electronic balance transfers in future as well as cheques, and we’ll build on this work during 2024.”
The FSCS said it expects to pay a similar amount in compensation to customers over the next financial year.
More than 80 per cent of this relates to firms that FSCS has already declared in default, rather than new failures on the horizon.
“While things remain relatively stable on the compensation front, it gives us the opportunity to prioritise important work that ensures FSCS continues to provide a trusted and effective service,” he said.
