Select Committee on Treasury Written Evidence


Annex 1

FURTHER INFORMATION ABOUT THE FINANCIAL SERVICES COMPENSATION SCHEME

LEGISLATIVE FRAMEWORK AND ROLE OF THE FSCS

  1.  The FSCS, as a Scheme, is the compensation scheme of last resort for consumers of financial services. The Scheme's role and scope—as to eligibility for protection and limits for compensation—are set out in the Financial Services and Markets Act (FSMA) and in FSA Rules. The FSCS, as the management company that operates the Scheme, is required by FSMA to be operationally independent. It is not part of the FSA, but accountable to it (and, ultimately, to the Treasury).

  2.  The FSCS became operational in December 2001, replacing eight previous compensation arrangements (including the Deposit Protection Board, Policyholders Protection Board and the Investors Compensation Scheme). The FSCS covers most financial services activities that are governed by FSMA and provided by firms authorised by the FSA. Deposits, insurance policies and investments are all protected.

  3.  Since 2001 the FSCS and the rules under which it operates have continued to evolve, taking account of a number of extensions to the FSA's scope and in the light of experience. In particular:

    —  July 2002: The FSCS protection extended to cover claims by members of credit unions.

    —  October 2004: Further extension to cover mortgage advice and arranging.

    —  January 2005: Further extension to cover general insurance intermediaries.

    —  March 2006: FSA Discussion Paper on options for changing the FSCS funding structure.

    —  June 2006: The FSA confirms existing FSCS compensation limits after review and public consultation.

    —  March 2007: FSA Consultation paper on a new funding regime for the FSCS.

    —  October 2007: The FSA raises FSCS deposit compensation limit to 100% of £35,000.

    —  October 2007: Tripartite authorities publish a Discussion Paper entitled Banking reform—protecting depositors.

    —  November 2007: The FSA publishes its final policy and rules on funding for the FSCS following consultation, with the regime coming into effect on 1 April 2008.

CURRENT COMPENSATION LIMITS

  4.  Alongside the current compensation limit for deposits of 100% of the first £35,000 per person per authorised firm, the FSCS also provides cover for other types of financial products and services. The categories covered are: investments; mortgage advice and arranging; general insurance; general insurance advice and arranging; and long term insurance such as pensions and life assurance. There are different compensation levels for the different categories of claims.

KEY STATISTICS DECEMBER 2001 TO 31 OCTOBER 2007

  5.  Since December 2001 the FSCS has made a significant contribution to protecting consumers in the UK who would otherwise have had no avenue of redress. Key statistics for this period are:

    —  Total compensation paid: £1.004 billion.

    —  Of this, more than £580 million was for insurance claims—involving over 250,000 individual payments.

    —  Total number of claims completed for investment and deposit-taking business: 87,000.

    —  Total levies raised from the industry: £830 million.

    —  Total recoveries by the FSCS, in its capacity as creditor of the failed institution: over £370 millio.


 
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