FSCS reports on a financial year basis, so spring is the season for writing our Annual Report and Accounts and compiling assurance statements. No wonder Eliot called April the cruellest month1!
Assurance is not just about numbers though.
We always attach a lot of importance to our relationship with stakeholders and, in particular, with levy payers. Though it is consumers whom we protect, it is the industry that pays. Firms pay for the consumer confidence and trust we help to generate.
So FSCS recognises it has a duty to the industry to explain how we go about delivering our service and to demonstrate – not just assert – our value for money.
With that in mind we undertake an annual survey of stakeholders to test how effectively we’re fulfilling that duty of accountability. It goes, among other others, to all the industry trade bodies and to a number of firms.
The survey is in two parts. The first is a quantitative element – the usual marks on a favourability spectrum. The second part, perhaps more useful, provides a qualitative component which gives people a chance to say what they’d like us to do more or better.
So what did this year’s stakeholder survey tell us?
Well, the raw numbers confirmed a high level of satisfaction: everyone who responded had a favourable view of us.
I think this tells us the effort we put into our regular communications and briefings is, at least, recognised and appreciated. We will continue to do this.
But, what about the qualitative feedback? Here I’d pick out two themes.
One concerns our work on recoveries.
A number of industry respondents thought that FSCS should disclose more information about the economic analysis which underpins our decisions. Why did we pursue recoveries in some cases, but not in others?
This is certainly a perfectly reasonable question, but one which it is hard to answer in real time by reference to real cases. That would mean, for example, disclosing necessarily confidential information about the financial affairs of third-party firms we believe share responsibility for the losses of consumers we have compensated.
We have an obligation to pursue recoveries to help offset the costs of compensating people. Our general rule is to pursue recoveries whenever it is practical and economic to do so. To put it another way, we take action where we are satisfied that the value of the potential recovery will exceed the cost of achieving it.
So far FSCS has never yet pursued a recovery without at least covering our costs.
This is easily stated, but, of course, a number of factors will then come into play. If litigation is involved, we naturally have to make an assessment of the prospect of a successful outcome. Our stakeholders would not thank us for incurring substantial costs on failed litigation – although success cannot not be guaranteed, so there is always a element of risk.
Where we are seeking recoveries from a third party – as in the Keydata case – we do take into account ability to pay. The fitness for purpose of PI insurance can be a factor here. So, of course, is the firm’s capital.
What we do not generally do is force an insolvency while pursuing recoveries because this would almost certainly fail our economic test. We never seek recoveries purely for punitive reasons or drive firms out of business.
At any event, I hope this overview of the factors we take into account provides some sense of how we approach recoveries. Wherever sensible, we shall publish a retrospective account of how we have tackled major recoveries actions – as we did with Keydata. This is a good example of a very favourable cost to recovery ratio.
The other theme I’d pick out is what stakeholders say about FSCS’ participation in public debate.
This is always a difficult one for a Chief Executive to judge.
On the one hand, FSCS does have an important public policy role. So I regard it as appropriate to comment on matters affecting our ability to fulfil that role. Our funding would is a good example. I am also happy to comment publicly on insights we gain through our work – the adequacy of PI insurance is an example here.
On the other, FSCS should not become the platform for a general public commentary on financial services matters. That is not our role. Nor is it one we will pursue.
I’m pleased to say that on this, you think we are getting things about right: not too vocal, but heard when we should be. We’re pleased about that because it continues a trend over the last few years.
That is how we shall continue to operate. And we shall also continue to commission our survey of stakeholders annually as part of our wider assurance work.
It’s an important part of our commitment to openness, accountability and value for money.
1 The Wasteland
The Financial Conduct Authority website includes a searchable database of all firms authorised and regulated by the FCA and the Prudential Regulation Authority (PRA).