The major turbulence in the financial world in 2007 had significant implications for the financial services industry and consumers worldwide. It also impacted heavily on the FSCS and led to a number of changes to improve the Scheme.
In their January 2008 report Financial stability and depositor protection: strengthening the framework, HM Treasury, the Bank of England and the FSA set out their response to the instability in the financial markets in the UK, prompted in particular by the run on Northern Rock.
The report outlined five objectives, one of which was to have ‘Effective compensation arrangements in which consumers have confidence’. A key proposal for delivering this objective was to ‘increase consumer awareness of the scope and operation of the [financial services] compensation scheme’.
The need for proactive communication about FSCS was further reinforced in the FSA’s October 2008 research paper CRPR75: Consumer awareness of the Financial Services Compensation Scheme. The research found that among retail consumers and small businesses ‘knowledge and understanding of the FSCS and how it works is very limited’, and that there was ‘strong sentiment that the FSCS and its key elements need to be publicised’. It also highlighted that consumers thought both the FSCS and financial services firms should communicate about the Scheme – the report states ‘The publicity is seen to be the responsibility both of the providers of banking services to consumers and small businesses (i.e. deposit-taking companies), and of the FSCS’. Specifically:
‘Consumers and small businesses want to see a combination of advertising from the FSCS and more direct and personalised communications from their banks, with the wording from the banks ‘policed’ by the FSA through regulation and information requirements on banks, etc.
- A two-pronged communication strategy is expected: ‘umbrella’ advertising from FSCS and more specific information through the banks across a range of media and materials to meet information requirements defined by the FSA.’
Building on this evidence, in January 2009 the FSA consulted on raising awareness of FSCS in its consultation paper CP09/03: Financial Services Compensation Scheme reform.
Following responses to that consultation the FSA published its policy statement PS09/11: Banking and compensation reform. In Chapter 8, the FSA outlines four objectives, two of which relate directly to the delivery of the FSCS consumer awareness programme:
- ‘To raise general consumer awareness of the FSCS and other arrangements in normal times [i.e. not times of financial stress];
- ‘To achieve the above objective(s) in a proportionate way so consumers are not unnecessarily alarmed.’
Those who had responded to this element of the consultation were supportive of the campaign, subject to it not being too ‘deposit-focused’.
The cost of the campaign was outlined as £4m, and this is the budget FSCS worked to in delivering the activity that ran in January, February and March 2011. The costs of the campaign were paid by the industry in the 2009/10 annual levy.