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FCA opens review of compensation scheme

The Financial Conduct Authority (FCA) has released a discussion paper requesting input on a revision of the compensation framework, following a dramatic increase in the amount paid out through the Financial Services Compensation Scheme (FSCS).

The revision of the compensation framework aims to “provide adequate protection for consumers, financed in a fair and sustainable way”.

The FCA is seeking views on fundamental questions about the purpose, scope and funding of its compensation framework to ensure it continues to meet the needs of consumers and businesses.

Read more: HMRC proposes fines for ISA violation

The operating costs of the FSCS are financed by fees paid by financial service providers. The total cost of this charge increased from £277 million in 2011/12 to a projected £711 million for 2021/22. This is the culmination of a series of historic investigations into corporate misconduct in the investment space.

The FCA noted that the pipeline of historic claims is expected to lead to further FSCS payouts in the coming years. The regulator says it wants to stabilize and phase out the compensation levy in the long term.

“We want consumers to have confidence in a thriving UK financial services industry and businesses to be confident that they can bring new and innovative products to market,” said Sheldon Mills, the FCA’s Executive Director for Consumers and Competition.

Read more: Legal campaign launched to write off loan reclaimed

“To achieve this, it is essential that consumers have an adequate level of protection should something go wrong – and that we find a fair and sustainable way to finance the costs of this protection. Now is the time to ask ourselves how we can ensure that our remuneration framework is fit for the future.

“We are already taking action against the drivers of insurance claims. These include our measures to reduce the impact of corporate bankruptcy and to address investment market misconduct.”

The FCA invites you to respond to the discussion paper by March 4, 2022.

Read more: FCA shifts responsibility for 90-day open banking approval rule

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