July

Anyone running a major business gets used to seeing stories about the business published over the course of the year. FSCS is no different in that respect; we’re probably fortunate, on the other hand, that we tend to get a favourable press because our role is to protect consumers when things go wrong.

The publication of the FSCS's Annual Report and Accounts 2013/14 last week provides an opportunity for a much more balanced assessment of FSCS’s performance over the year.

That, at any event, is how we see the annual report: as a transparent statement of how well FSCS performed against its core aims and whether it provided value for money.

I hope you will look at it with that in mind.

Rather than repeat the report’s highlights, let me instead offer four observations about the nature of our work which any reader of the Annual Report and Accounts should keep in mind.

One is that the volume of claims we deal with is not necessarily a good guide to the current pressures on FSCS.

Paradoxically, high volumes of similar claims are straightforward for FSCS.  Once we have drawn up a clear basis for assessing those claims, we can instruct one of our outsource partners who compete for the claims handling work.

Much more taxing for FSCS is a plethora of smaller failures which all raise different and difficult issues of eligibility and quantification.  We must then work through those issues and determine how to deal with the claims and how to quantify consumers’ losses before we can engage with the outsourcers.

That was the story of 2013/14.  We saw a decline in the volume of PPI claims, which may now be past their peak.  But we had to deal with more complex failures in the investment intermediation and life pensions sectors.  So total claims handled fell – to 39,000 from 62,000 the previous year - but FSCS’s workload did not.

Second, as a result of these complex failures, FSCS is often able to draw attention to issues which may have wider significance.

I have already written a blog this year drawing attention to some of the risks for UK consumers created by the absence of an EU framework for insurance compensation.  FSCS often has to work hard to ensure protection for UK policyholders when firms which passported into this country from other EU states fail.

And I used my introduction to this year’s annual report to draw attention to the risks to consumers who are advised to move their retirement savings out of occupational schemes and into SIPPs.  This is often coupled with advice to hold high risk and illiquid assets within the SIPP.

We strongly support the action FCA is already taking on this front to protect consumers.

Third, the counterpart of paying compensation is pursuing recoveries from the estates of failed firms or from third parties which shared responsibility for consumers’ losses.  When FSCS compensates consumers it takes over their rights.

We pursue those rights wherever it is economic to do so.  In the process, we offset the costs of compensation to our levy payers.  Last year we recovered £353m on behalf of the industry.

Of course, it’s not always possible to give a full account of what FSCS has spent in pursuing recoveries and what it has actually recovered until complex legal action is complete. A good example here is the Keydata case where a premature statement would compromise our ability to achieve further recoveries.

But I can assure levy payers that we aim to maximise recoveries and will not spend money which does not offer the prospect of a return.  I hope that, by the time we publish our Annual Report and Accounts for 2014/15, we shall be able to provide a full account of our work on Keydata recoveries.

Finally, please bear in mind, in reading our annual report, that FSCS must be ready for the future as well as providing a service in the present.  Our ability to underpin financial stability will depend on performing effectively and protecting consumers in the next crisis whenever it comes.

That is why we devote time and resources, together with our partners in government and the regulators, on contingency planning.  And it is why we continue to invest in the business, through programmes like Connect, which aims both to improve our service to consumers, but also to ensure that FSCS can expand its service rapidly and efficiently when the need arises.

The Annual Report and Accounts 2013/14 is a statement about the past.  But FSCS must be able to operate effectively in the future.

 

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Jargon Buster

  • FCA

    The Financial Conduct Authority is the UK's regulator for the financial services industry. 

  • Investment

    a financial product in which money can be invested to earn interest or profit (although the value of investments can go down as well as up).