Accounting for ourselves

FSCS published its 2015/16 Annual Report and Accounts last week – a little later than planned, but then there’s a lot going on.

I confess to some frustration about this annual exercise.

It is, in principle, an important part of our accountability to our stakeholders. We spend a good deal of time producing the Annual Report and Accounts. Together, these documents provide a fair and readable overview of FSCS’ achievements and challenges over the last year and set them in the context of our longer-term strategy to provide a trusted compensation service for our customers which supports financial stability. And it provides an important record for future reference.

But in reality the Annual Report and Accounts are too little read. I know many stakeholders do take the time but often it feels the main audience often seems to be applicants for jobs at FSCS! Those applicants, incidentally, are usually complimentary about the insights they provide. The same goes for the feedback we get in our stakeholder audit.

Now, I’m not naïve: annual reports have never been page turners.  But I think this is a pity, especially now.

FSCS’ role as a guarantor of financial stability has never been more important.  In the uncertain and unpredictable times following the EU referendum, people need to know that they can continue to deposit their money, insure against risk and invest for the future with the assurance of FSCS protection if a regulated financial services business fails.

FSCS’ ability to reassure rests on twin pillars: competence and awareness. 

We must be able to protect people in all eventualities, including another crisis. And people must be aware of our protection and trust our promises.

The annual report describes what FSCS has done in the last year both to enhance our capability and to raise awareness of our protection.

Key to our capability is the investment we have made in a new process for handling non-deposit claims. This complements the fast pay-out capacity we established in 2011 to enable seven day pay-out for deposits in failing banks, building societies or credit unions.

This was a transformational change for FSCS.  When fully bedded in, the new system will greatly enhance our service to consumers who will be able to claim on-line with much reduced effort and receive a faster service. And it will enhance our own efficiency because we are now sharing our claim handling platform with our outsource partners and dealing with all claims electronically.

All transformational changes, however, throw up challenges. This one was no exception. The annual report describes how we have responded to those challenges by commissioning an independent review and by strengthening our capacity, particularly our capacity to manage change.

The bottom line, however, is that tens of thousands of claims have now moved successfully through our new system from application to payment. And we have successfully trialled our on-line portal which will go live later this year.

With a little help from the change in the deposit protection limit in January – now at £75,000 – we have also seen a big rise in awareness of the protection we provide for deposits in the last year. That now stands at 76% - high by international standards.

That level of awareness should stand us in good stead in the event of another major failure or crisis.

It is worth emphasising that this heightened awareness of our protection reflects a fruitful partnership with the industry. Yes, FSCS spends modestly on our own marketing – about £3.8m in 2015-16, entirely borne by deposit takers. However, the heavy lifting is done by the work banks, building societies and credit unions themselves do to notify their customers of our protection. Our results show the impact of this work and the positive role our badge plays in promoting trust in the industry.

As our Chair, Lawrence Churchill, points out in his introduction to theannual report, FSCS protection of other financial services – insurance, investments and investment advice – is much less well understood.  That is partly because of the variations and complexity of that protection, with differing limits for different products.

Following the pension reforms, we think there is a strong case for harmonising FSCS protection – certainly for retirement savings – so that consumers can exercise their freedom with confidence. That’s something that is being considered as part of the current FSCS funding review on which we and the industry are working with the FCA.

But that is a subject for future annual reports. Take the time to read the report thoroughly and it will give you insights too.