Financial Services Compensation Scheme Reform (CP09/3)

Updated February 2009

This consultation paper outlines how the Financial Services Authority (FSA) intends to raise awareness and understanding of the Financial Services Compensation Scheme (FSCS) in order to increase public confidence in the scheme and the protection it provides. It also puts forward proposals designed to ensure that compensation can be paid to the majority of depositors within seven days following the failure of a deposit taker. The fast payout proposals are intended to provide rapid access to liquid funds for depositors, minimise hardship and increase consumer confidence.

The consultation paper makes the following recommendations:

• simplifying eligibility for deposit compensation to include all private individuals and small entities;
• gross payout, which would ignore any debts the depositor has with the same firm; 
• ensuring the firm holds up to date information to allow quick processing of claims; 
• ensuring firms provide information on the existence and basic coverage of the FSCS for deposits; and
• requiring firms to proactively tell consumers which trading names are covered by a particular authorisation.

The consultation paper will be open for responses until 6 April 2009. If approved by the FSA Board, it proposes that the rules on fast payout will be implemented from 31 December 2010, and the disclosure rules on consumer awareness will be implemented from 1 January 2010. The wider strategic programme of communications will be developed over the coming months, and begin in mid-2009.

In the meantime criticism has centred on the increase to the levy demand firms have been asked to pay. This is the first time the FSCS has had to levy firms in respect of deposit claims.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2009. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT's Financial Services Regulation team acts for financial services institutions including banks, lenders, e-money issuers, payment services institutions, fund providers and other regulated firms in the direct and intermediary sales channels.