The more things change, the more FSCS changes...
FSCS recently published its Plan & Budget 2019/20. This document is a regular part of our timetable: it sets out how we intend to take forward our strategy in the year ahead and the budget needed to support our work.
It also publishes our initial forecasts of claims, compensation costs and levies for next year.
The Plan & Budget is, in short, an important part of our accountability to the industry which funds FSCS.
This was also the ninth and last Plan & Budget over which I shall preside before stepping down as chief executive in the Spring.
This is, accordingly, an interesting moment to look back at my first such document – Plan & Budget 2011/12 published in January 2011 – because, nostalgia apart, the contrast illustrates some important lessons about the evolution of both FSCS and the industry we protect.
Take the money, for example.
Plan & Budget 2011/12 was drawn up in the shadow of the financial crisis. The urgent need was to ensure that FSCS had the industrial strength capability it needed to deal with major failures.
So in January 2011, we had just brought on line our fast pay-out capability for banks, building societies and credit unions. We had already used fast pay-out in anger once to deal with a small credit union failure. We returned deposits in seven days and have continued to do so ever since when called on.
But in other respects FSCS’ handling of claims back in 2011 was distinctly pre-industrial.
We had a different process for each product we protected. And everything was paper-based.
There was a large file store at our London office and claims files piled high on every desk. The paper passed clunkily and insecurely between us and our claims handling partners.
So Plan & Budget 2011/12 included an investment fund of £22 million to finance the upgrading of our IT and the re-modelling of our claims handling process.
This was the beginning of a four-year programme of investment which would lay the foundations for our current on-line service and establish the claims handling platform which we share with our out-source partners.
It’s this investment, together with our partnership with Capita, which is now enabling us to turn claims round much faster and more efficiently. So in the year ahead, 2019/20, we are able to hold our management budget flat in real terms at £79.6 million despite a forecast 20% rise in claims.
We continue to invest in digital technology now, of course, to improve our service to customers. But the equivalent investment budget for 2019/20 is just £4 million.
Another large number in the 2011/12 budget was the £350 million we expected to spend servicing our £20 billion borrowing from HM Treasury – the cost of protecting depositors in the banks that failed in 2008.
Fast forward to 2019/20, that number is now zero. We have achieved the recoveries from the estates of the failed banks which have re-paid that borrowing in full.
What about claims?
Well, there too there is a fascinating contrast which demonstrates just how different the world of the 2020s is from the world of the 2010s.
Back in January 2011, we were expecting a grand total of 644 pension claims in the year ahead – that’s just under 2% of the workload.
Nine years on and we are expecting just under 10,500 pension claims next year. That equates to 44% of the projected claims handling workload.
This growth in pension claims is now the biggest challenge we face. It is a big factor in the forecast levies for next year of £516 million.
And it reflects the vulnerability of consumers, who, following pension freedom, now have more choice and carry more risk, but generally possess no greater financial insight to make those choices and manage those risks confidently.
These consumers are especially susceptible to the minority advisers – both regulated and unregulated – willing to promote risky investments with beguiling promises or simply, in some cases, to ask too few questions about their clients’ plans.
This explains why our strategy for the 2020s - Protecting the Future – emphasises prevent and promote as well as prepare and protect: we must do more to share with the regulators the insights and intelligence which will bear down on mis-selling.
If the priority as we entered the 2010s was to improve FSCS preparedness and capacity to protect consumers in a wide range of circumstances, the priority now is to tackle the causes of failure and to raise awareness among consumers of the risks they face and of the scope of FSCS protection.
In short, the more things change, the more FSCS changes in response.