Outgoing FSCS Chief Executive calls for higher protection limits

  •  Mark Neale suggests a more targeted range of pension product coverage would be easier for consumers to understand
  • The compensation limits for this new targeted range could be increased
  • An FCA kite marking scheme for pension products would ensure consumers are confident that they are getting good value

Outgoing Financial Services Compensation Scheme (FSCS) Chief Executive Mark Neale, will today give a speech at UK Finance’s Retail Banking Summit outlining his personal views on the organisation, its journey to date and a range of issues associated with the future of the protection for customers of financial services products.

In a personal capacity, Mark will be providing a number of thoughtful conclusions, including proposed policy remedies to current problems.

In his speech, Mark will highlight how over 60% of the £3.3bn paid out in compensation costs during his tenure were as a result of mis-selling or bad advice. A significant proportion of this compensation was due to bad advice to transfer money from occupational schemes in order to invest in risky and illiquid assets, usually held within a SIPP. FSCS has paid out compensation of £581 million for these claims in the five years from 2014/15. That compares with only £80 million in the four preceding years before pension freedoms took effect.

Mark will go on to explain that he feels the FSCS’ protective net is currently cast too wide, and that a more targeted approach in future may be more beneficial for consumers. He will suggest that the wide range of retirement products protected makes it difficult for consumers to understand – and that in the interest of guiding them towards simple, good value financial products, FSCS should exclude a number of unregulated investment and retirement products that have led to increasing FSCS pay-outs in recent years.

Alongside this, Mark believes the level of FSCS protection should increase significantly so that no consumer is at risk of losing a major part of their pension if they are mis-advised about how to invest. He will propose that regulated advisors should then be barred from recommending products outside of this boundary to mainstream investors.

Beyond the FSCS and looking at the wider financial services market, Mark will suggest a number of policies to support consumers to make retirement planning decisions. He will call for consumers to be given more default retirement options, which would provide a sensible strategy for investing retirement funds to consumers who do not have strong views of their own. One example he will offer is that pension products could be kite marked by the FCA to ensure that consumers can be confident they are buying good value.

Mark Neale, Chief Executive of FSCS, said: “It is almost nine years since I joined FSCS as Chief Executive and so my speech to the UK Finance Retail Banking Summit is a distillation of my experience. My views are from the perspective of the people FSCS serves, namely mainstream consumers. My concern is with the great majority of people who are not financial experts and find financial products daunting. Sophisticated investors can look after themselves.

“FSCS’s compensation payments are an index of a market in trouble, which is highlight by the fact that claims and payouts are rising. It is sobering that a substantial portion (61%) are as a result of mis-selling or bad advice. It results from a market characterised by a bewildering array of products, by complexity – some deliberate – and by profound information asymmetry.

“It is delusional to think that any regulator could police such a fragmented market to anticipate harm before it manifests itself, rather than to react to its occurrence. Consequently, I advocate prioritizing protection of the consumer over maximising choice. This means better and clearer incentives to save for retirement; simpler products and more default options; and better targeted communications, including about FSCS, when they matter to consumers.

“The market for financial services is there to serve customers. Profit in the market should come from serving customers well, not from skillful manipulation of their behavioural biases and exploiting their discomfort when faced with products and choices they struggle to understand. My suggestions are aimed at provoking a debate about how the market could evolve better to meet customers’ needs. I hope they do that.”                                                                     

You can find the full text of Mark Neale's speech here.

For more information contact Max Kelly at Hanover Communications by calling 07590 120533 or emailing mkelly@hanovercomms.com.

Notes to editors

  1. About FSCS

FSCS is the UK's statutory compensation scheme for customers of authorised financial services firms. FSCS is funded by the financial services industry and protects investment business, deposits, home finance – mortgage – advice, and general insurance and insurance broking. FSCS can pay for financial loss if a firm cannot pay claims against it. We are independent, and do not charge individual customers for using our service.

Before FSCS can declare a bank, building society or credit union in default and pay compensation to its customers, it must be satisfied the firm cannot repay deposits because of its financial circumstances, and has no current prospect of being able to do so. For more information on FSCS, please visit www.fscs.org.uk.

  1. Key statistics from the speech
  • Total FSCS payouts 2010-2019: £3.3bn
  • Total FSCS payouts 2010-2019 relating to mis-selling/bad advice: £2bn
  • Proportion of total payouts 2010-2019 relating to mis-selling/bad advice: 61%
  • Compensation related to bad advice to transfer money from occupational schemes in order to invest in risky and illiquid assets, usually held within a SIPP.
  • In 4 years between 2010/11 and 2013/14: £80m
  • In 4 years between 2014/15 and 2018/10: £581m