FCA launches a discussion paper as part of its review of the compensation framework

The FCA last reviewed FSCS's compensation framework between 2016‑2018.  In recent years, increasing claims against failed firms have focused attention on the compensation framework within which the FSCS operates and have led to increasing dissatisfaction amongst industry levy payers that fund the compensation costs. These increasing costs have shone a light on aspects of the FCA’s rules in respect of the compensation framework that mean it may not be working in a way that appropriately balances the benefits to both consumers and firms.

On 6th December 2021, the FCA published a discussion paper (DP21/5) which aims to open a discussion with stakeholders on ways in which aspects of the compensation framework which the FCA is responsible for could be improved.  The aim is for the framework to provide appropriate and proportionate consumer protection and costs are distributed across industry levy payers in a fair and sustainable way.

The FCA has asked for input on the following questions:

• Is a change to the scope of FSCS protection – either serving to widen or reduce the scope of protection – appropriate?
• Do you consider that ‘high‑net‑worth’ and/or ‘sophisticated’ individuals should be excluded from being able to claim from the FSCS in certain circumstances? If so, should the exclusion(s) apply to all types of claim or just certain categories of claim?
• Are there other opportunities for refining FSCS's eligible claimant criteria?
• Does the CIS ‘look‑through’ remain appropriate?
• Do you consider changes should be made to the level

  of compensation that is payable by the FSCS?

• How do you consider the current funding model (for the classes that the FCA is responsible for) could be improved, to ensure that costs are appropriately distributed and the impact on firms is proportionate?

Responses are invited by 4th March 2022.