WIREDGOV

The Financial Services Authority (FSA) yesterday published a consultation paper setting out proposals for speeding up the payout of compensation to make it possible for customers to get back their money within seven days if a bank fails.

The critical importance of the Financial Services Compensation Scheme (FSCS) in paying out compensation to depositors has been emphasised by the events of recent months.  As part of the wider banking reform work the Tripartite authorities and FSCS have committed to ensuring faster payout from the FSCS.

Hector Sants, chief executive at the FSA, said:

“Experience in the last year has highlighted how essential compensation is and that it is imperative consumers understand and trust that they will be reimbursed if a bank, building society or credit union fails.  Our current scheme has worked well in these unprecedented times, compensating hundreds of thousands of savers in a matter of weeks.

“But today’s consultation paper seeks to learn the lessons from those events to produce an even better system.  We recognise that to help underpin confidence in our banking system consumers must feel confident that their money is well protected – regardless of whether they ever have to claim compensation.”

Today’s consultation paper makes the following recommendations:

• Simplifying eligibility for deposit compensation to include all private individuals and small entities;
• Gross payout, which would ignore any debts the depositor has with the same firm;
• Ensuring the firm holds up to date information to allow quick processing of claims;
• Ensuring firms provide information on the existence and basic coverage of the FSCS for deposits; and
• Requiring firms proactively to tell consumers which trading names are covered by a particular authorisation.

The set up and maintenance costs of new IT systems for quick claims processing are estimated at £891.8m over five years.  Firms' obligations to tell customers about the FSCS scheme, along with telling customers which trade names are covered by a particular authorisation, would have estimated set up costs of £34.6m and ongoing annual maintenance costs of £4.2m. 

The consultation paper also includes proposals on how the FSA aims to increase the awareness and understanding of the FSCS among consumers.

The consultation paper will be open for responses until 6 April 2009.

Notes for editors

1. FSCS Reform CP09/3.
2. The FSA, along with the FSCS and the British Bankers’ Association (BBA), commissioned Ernst & Young to undertake research into the fast payout proposals. Ernst & Young’s report.
3. The FSA, along with the FSCS, commissioned Strictly Financial to undertake research into consumer understanding and awareness of compensation arrangements. Strictly Financial’s report.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.