20th June 2022

Customer centric FSCS and discretionary payments

“The levy dropping for the coming financial year does not hide the fact that compensation continues to increase and wider reform is needed” according to the boss of the FSCS in an interview with FT Adviser last week.

Ms. Rainbird did cast some light on the scheme workings. She notes that ‘Behind every pound of levy is someone who has suffered loss.’ A statement of the blindingly obvious but it is well worth listening to. 

I did not know that claimants are now referred to as ‘customers’, a state industry standard collective these days, like HMRC, the Prison Service, Job Centres, Council Taxpayers. 

The FSCS is the fund of last resort set up to assist what today is becoming commonly known as victims of financial advice. Some 48,000 firms fund the levy. The FSCS is a vital part of consumer protection. I guess in the woke world we live in, describing what the FSCS does should now be considered as ‘financial safeguarding’. 

If the FSCS accepts a claim, the firm must no longer be trading and if not a limited liability entity, the owners of the business must not be able to settle a claim themselves. 

There are rules relating to what constitutes a qualifying loss situation.

The claim for loss should only be admissible if the complaint relates to advice given by the firm up to 6 years ago, or a further 3 years should the ‘Customer’ not have been reasonably aware they had grounds for concern. A maximum time scale of 9 years.

Like the FOS, it should not cover investment performance or if a non-investment related product has settled a claim 

We understood that the FSCS does recognise longstop limitations but subsequently found out that the FSCS has been paying compensation on a discretionary basis.

This is well worth a read, I tried to get some sense of the scale of discretionary payments made by the FSCS to consumers who have long since passed their ‘complain by’ date but as of 25th September 2021 I am still awaiting a response from Ms Rainbird.

We have no idea of the levels of discretionary payments, but it could be that ‘Behind every pound of levy is someone who has been compensated that perhaps should not have been’? 

Some 40% of FSCS ‘Customers’ come from CMC’s, 80% of claims relate to losses over 5 years after the date of advice and claims are getting more complex.

It is hinted in the interview that a common cause for ’Customer’ dissatisfaction relates to a lack of financial literacy linked to complexity in product design and wordings.

And looking forward, Ms Rainbird reckons that the increased costs of living will see more ‘Customers’ claiming losses and wanting compensation, discretionary or otherwise.

Many years ago, Mark Garnier MP reckoned that the world of financial services regulation had created an environment where anyone who decided for whatever reason, many years later, that the advice given and accepted was no longer suitable it was underpinned by the premise that someone will compensate. This was not an acceptable situation and he felt that some responsibility must fall on the ‘Customer.

What do you think?

Regulation