FSCS pays out 535 million pounds in compensation
During 2010/11, the FSCS faced an increasing number of claims, including those for high profile failures such as Keydata Investment Services Limited (Keydata).
It received close to 39,500 new claims from consumers, an increase of 25 per cent on the previous year and decided more than twice the number of claims (more than 47,000) it did in 2009/10. There was an increase of 75 per cent in the numbers of enquiries received, a total of 167,600.
The failure of Keydata continued to dominate the work of the FSCS during 2010/11.
In total, the Scheme resolved more than 27,000 claims arising from the Keydata failure and paid out £214m to investors.
There was also a rise in the number of Payment Protection Insurance (PPI) claims, which accounted for just over 20 per cent of new claims. And the FSCS expects to receive a continuing high volume of PPI claims in 2011/12.
The FSCS has worked closely with deposit-taking firms to ensure consumers are compensated within the new legal requirement of 20 working days of a deposit taker failing.
However, the FSCS’s own target for paying consumers is within seven days of a bank, building society or credit union going bust. Following the defaults of three credit unions in January 2011, the FSCS paid the vast majority of members within 48 hours and the balance of straightforward claims within seven days.
To deliver the faster payout requirements, the FSCS invested in its IT systems during 2010/11. This investment will benefit other sectors by helping the FSCS to deal with a greater complexity and volatility of claims across financial services.
Mark Neale, chief executive, says: ‘‘During 2010/11 the Financial Services Compensation Scheme faced another challenging year of increasing claims volumes and maintained its focus on protecting consumers.
“We made substantial strides during the year in providing an even better service to consumers and the industry and will be building on this during 2011/12.
“Our successes in 2010/11 reflect the hard work and investment we are making to strengthen the organisation as we prepare to meet the demands of the future as well as our work with the industry on a range of fronts. The FSCS continually strives to find innovative solutions better to serve consumers while saving costs to the levy payers.”
The report explains how the FSCS has developed new ways of working to manage the claims that arise from complex defaults, such as working with other organisations. For example, following the Keydata default, more than 10,000 consumers discovered they owed money to HMRC after some Keydata products had been mis-sold as being ISA-qualifying. The FSCS solution was to pay the consumers’ tax liability direct to HMRC, saving claimants time and trouble.
In another ground-breaking arrangement, the FSCS negotiated an agreement with the Norwich and Peterborough Building Society. This resulted in N&P paying recoveries of some £28m in respect of the compensation the FSCS had paid to N&P customers who had invested in Keydata products. Levy payers will be saved substantial compensation costs of over £40m in relation to investments that were made through N&P.
The FSCS also worked with Welcome Financial Services, which was declared in default in March 2011. The FSCS arranged to use Welcome’s own claims-handling capabilities to process claims. The restructuring arrangements also provided for payments to be made to the FSCS to fund compensation and the associated costs, again saving substantial costs for levy payers.