FSCS funding proposals welcomed

Ramesh Sharma

March 25, 2006

It has placed four options under debate, ranging from a broad-church approach, which would see all areas of the financial services industry paying for one fund to a fragmented system where each area, e.g. mortgages, pensions, would support its own fund.

Loretta Minghella, chief executive of the FSCS, said: “The FSCS plays a vital role in maintaining consumer confidence in the financial services industry, a role from which all firms benefit. We need a funding structure that is sustainable, that smoothes volatility in compensation bills and provides sufficient funding to let us get on with the job we are here to do.”

David Kenmir, managing director of the FSA, explained its position. “We favour a solution which initially apportions the cost of compensation to the broad classes, and then once claims exceed a certain financial amount spreads the cost amongst all those who contribute. We believe this will be much more robust than the present arrangements, will allocate costs to firms that have a mutual interest in maintaining the confidence of consumers who use markets within which they operate, and will be relatively simple to administer.”

The Association of Independent Financial Advisers (AIFA) had attacked the FSCS for placing too much of the funding burden on smaller firms and welcomed the review.

Chris Cummings, director-general of AIFA, said: “We are very pleased the FSA is proposing radical reform and, in particular, that it has not included the status quo in its four options. This is good news for the IFA sector. Any wider pooling of the costs incurred is a major step forward which should help reduce costs for our members.”

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