Publishing the feedback to its review of the compensation framework, the regulator said it would not be changing the way different classes contribute to the levy. This is to prevent situations where a particular sector is faced with unaffordable fees.
However, it said it was open to looking at the funding arrangements so less of a burden is placed on the retail pool, such as the money collected by FCA penalties which are currently paid to the Exchequer’s Consolidated Fund. The FCA said it was up to the government to decide how this money is used.
It also agreed with suggestions that the current thresholds for classes be reviewed to avoid “unintended unfairness”. It said it would look at the ability of firms to meet costs and the risks they may be exposed to.
The level of provider contributions will also be looked at, which is currently a 25 per cent contribution towards failures within the general insurance distribution, life distribution and investment intermediation and home finance intermediation funding classes.
The FCA said such contributions ensured providers designed products which intermediaries understood and benefitted customers, which would be consistent with Consumer Duty.
Some responses called for a reduction in the protection available for certain activities, such as non-standard or high risk investments, and the advice associated with them. It was suggested that these activities made up a high proportion of overall claims. The FCA said it was open to restricting the scope of the FSCS’ protection with this in mind.
It was also proposed that the limits for compensation either be maintained or increased, with few calling for a reduction. In particular, respondents posited an increase to pension compensation limits as they said claimants were often not compensated in full.
The FCA said it planned to review current compensation limits next year, with a focus on pension claims. It also said it would consider regularly reviewing compensation limits in line with a particular economic measure like inflation.
The review was launched in December last year after concerns were raised about the rising cost of compensation which the FCA said could create a barrier to firms entering or wanting to stay in the market.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “We welcome the constructive engagement and feedback which will inform the next phase of this work.
“We want to make sure the cost to industry for providing vital protection to consumers through the FSCS is distributed in a fair and sustainable way – that the polluter pays. We’re continuing our assertive action to prevent harm from happening in the first place, which should help reduce the levy over time.”
