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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