As a year progresses, events follow each other thick and fast. It’s sometimes difficult to discern the truly significant from the ephemeral.
Now we’re at the end of the year, I think it is worth picking out some developments which, in my view, will be seen to endure.
Here are my top five:
First on my list is the resolution of the Co-op Bank. FSCS was not called on, so you may think it an odd choice.
But Co-op was the first troubled UK bank, building society or credit union to be resolved by bailing in its bondholders – in this case through a voluntary re-capitalisation – rather than through an FSCS pay-out or a tax payer bail-out.
This is surely a good omen. It offers a model for successful resolution in future and brings nearer the prospect of a functioning market in which firms can fail safely without disrupting wider financial stability, but, importantly, with continuity for consumers.
Second, and staying with resolution, I would point to the dog that didn’t bark as the Co-op Bank was resolved. We saw little sign of panic by insured depositors despite the publicity for the Bank’s difficulties.
This may – I put it no more strongly – be an indication that savers do now recognise that FSCS protects their deposits up to £85,000, and it would get their money back to them within 7 days if the worst happened.
It’s consistent with the finding of our market research which shows awareness of FSCS protection rising above 50% for the first time. This is an encouraging testimony to the partnership FSCS has forged with banks, building societies and credit unions to publicise our protection.
Third, we have shown again that FSCS keeps its promises by paying out within 7 days the great majority of savers in the 8 credit unions which failed in 2013.
This is doubly significant. It demonstrates the credibility of FSCS protection. And it also demonstrates that credit unions are safe places to deposit your cash so that they can continue to perform their valuable role of accepting savings and providing loans within the communities they serve.
Fourth, FSCS continues to be challenged by the complexity of many failures in the investment intermediation sector. The Catalyst failure is just the latest.
We turn round 90% of non-deposit claims within our service standards – 3 months for PPI claims, 6 months for most others – but the small proportion of claims which take longer almost always reflect the need to unravel difficult legal issues.
In order to compensate, FSCS must establish that a failed business had a liability to the investors advised by an intermediary. But it is often far from straightforward establishing whether an investor’s losses were caused by bad advice or by some other factor – fraud, for example – which the IFA could not readily have foreseen.
And even once a liability has been established; it can be difficult to quantify the loss where the underlying investment was in an illiquid fund.
These are not excuses. We need to be better at anticipating these issues and addressing them earlier. We have made improvements in the processing of the claims. But they do illustrate that protecting investors, or policy holders, presents completely different challenges from protecting depositors. FSCS is unusual internationally in having such responsibilities
And, fifth and last but by no means least, this year has seen the arrival on the scene of the new regulators: FCA and PRA.
On the strength of nine months’ experience, I would certainly say that the result has been that we now have a better focused dialogue and accountabilities: to PRA for FSCS’s part in arrangements for resolving banks insurers and other systemically important businesses; to FCA for the protection FSCS provides for investors, policyholders and mortgagees.
We look forward to deepening these accountabilities in 2014.