FSA proposes early start for the new single compensation scheme

Under the proposal being consulted on, the FSCS would replace the Investors Compensation Scheme Limited (ICS) and take responsibility for managing the compensation scheme for investors. Other existing compensation schemes would arrange for their operations to be managed by the FSCS under service level agreements until the FSMA takes full effect.

Christine Farnish, Director of Consumer Relations said:

"Establishing the new scheme early will enable the FSCS management team to get on with the important work of bringing existing schemes under one roof, ensuring smooth continuity of operations and facilitating planning for the new integrated scheme.

As the compensation scheme is a final ''safety net'' for consumers when a financial services firm goes out of business, it provides a key part of the FSA framework to protect consumers. Consumers will benefit from having a single structure in place as soon as practical, replacing the array of different schemes and providing a one stop shop for claims."

The FSCS will replace the various schemes which currently provide compensation to investors, policyholders and depositors in the event of the failure of authorised firms.

The transition process will not affect the operation and funding of current compensation arrangements, but new Scheme rules will come into effect when the FSMA is fully implemented later next year.

Notes for editors

1. The Financial Services and Markets Act (FSMA) provides for a single compensation scheme, operated by a scheme management company. The FSA has established the Financial Services Compensation Scheme Ltd (FSCS), a company limited by guarantee to act as the management company. It is independent of the FSA in its day-to-day decision making, but accountable to the FSA.

2. The FSCS will deal with compensation arrangements currently the responsibility of the following schemes:
   • the Deposit Protection Scheme,
   • the Building Society Investor Protection Scheme,
   • the Policyholders Protection Scheme,
   • the Friendly Societies Protection Scheme,
   • the Investors Compensation Scheme and
   • the Section 43 Scheme (which covers business transacted with listed money-market institutions).

   The FSCS will take up its new role fully at N2, the date when the provisions of the FSMA come into effect.

3. Current levy arrangements will not be affected by the proposed FSCS early start. Detailed levy rules will be the subject of a separate consultation exercise to take place early next year.

4. The Consultation Paper is available from the FSA website.

5. The closing date for comments on this proposal is 15 December 2000.

6. 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; the protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal

Appended information

This Consultation paper is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/Pages/Library/Policy/CP/2000/72.shtml.